USD/CHF hovers around 0.9100 as US Dollar remains steady ahead of FOMC Minutes
- USD/CHF may gain ground due to the hawkish policy shift by the Federal Reserve.
- The latest ISM services report indicated higher activity and rising prices, fueling concerns about persistent inflation in the United States.
- The Swiss 10-year bond yield climbed to 0.37%, marking its highest level in over a month.
USD/CHF steadies following gains from the previous day, trading around 0.9090 during the Asian session on Wednesday. The pair may strengthen as the US Dollar (USD) gains support from the hawkish shift in investor sentiment toward the Federal Reserve's (Fed) interest rate outlook, following strong US economic data.
The latest ISM services report suggested increased activity and rising prices in the United States (US), intensifying concerns about persistent inflation. Traders are now focusing on upcoming US jobs data, including the Nonfarm Payroll (NFP) report, as well as the latest FOMC Minutes, for further policy insights.
The US ISM Services PMI increased to 54.1 in November, up from 52.1, exceeding the market expectation of 53.3. The Prices Paid Index, which reflects inflation, rose significantly to 64.4 from 58.2, while the Employment Index dipped slightly to 51.4 from 51.5.
The US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against six major currencies, holds its position above 108.50 at the time of writing. The Greenback strengthened as the 10-year yield on US Treasury bonds rose by over 1% in the previous session, currently standing at 4.68%.
On the Swiss side, the yield on the 10-year government bond rose to 0.37%, its highest level in over a month, as traders assessed the outlook for interest rates and the global economy. In December, Swiss consumer price inflation eased to 0.6%, matching October’s lowest level since June 2021, down from 0.7% the previous month.
Traders have increased their expectations for further policy easing by the Swiss National Bank (SNB) this year, likely in March and June, due to ongoing strong disinflationary risks. SNB Chairman Martin Schlegel recently signaled that more rate cuts are probable, with negative interest rates remaining a potential tool to manage the Swiss Franc (CHF) and protect exports.
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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