USD/CHF moves below 0.8450 due to dovish Fedspeak, Swiss Foreign Currency Reserves awaited
- USD/CHF extends its decline due to dovish comments from the Fed officials.
- Fed’s Austan Goolsbee said that the longer-run trend of the labor market and inflation data justify the Fed easing soon.
- Swiss Foreign Currency Reserves will be eyed to gain further insights into the SNB’s policy stance regarding the CHF.
USD/CHF extends its losing streak for the fourth successive session, trading around 0.8430 during Friday’s Asian hours. The dovish remarks from the Federal Reserve (Fed) officials put downward pressure on the US Dollar (USD) and undermine the USD/CHF pair.
Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of the labor market and inflation data justify the Fed easing interest-rate policy soon and then steadily over the next year. FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Goolsbee’s words as neutral with a score of 3.8.
The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, continued to lose ground for the third consecutive day, driven by the decreasing US Treasury yields. The DXY trades around 101.00 with 2-year and 10-year yields on US Treasury bonds standing at 3.73% and 3.71%, respectively, at the time of writing.
On the Swiss front, the seasonally adjusted Unemployment Rate remains steady at 2.5% for August, data showed on Thursday. Traders are now awaiting Friday’s release of Foreign Currency Reserves for August to gain further insights into the Swiss National Bank’s (SNB) policy stance regarding the Swiss Franc (CHF).
Moreover, recent data showed that domestic inflation slowed more than anticipated in August, fueling expectations for another interest rate cut by the Swiss National Bank (SNB). The Swiss Consumer Price Index (CPI) increased by 1.1% year-on-year, down from the previous reading of 1.3% and below the market consensus of 1.2%.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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