USD/CHF gathers strength to near 0.9000 as traders brace for US PCE data
- USD/CHF gains ground to around 0.8995 in Friday’s early European session.
- Trump said tariffs on Mexico and Canada will go into effect on March 4.
- The risk-off mood and safe-haven flows could boost the Swiss Franc and cap the pair’s upside.
The USD/CHF pair trades in positive territory near 0.8995 during the early European session on Friday. The Greenback jumps after US President Donald Trump's latest tariff comments. The US Personal Consumption Expenditures (PCE) Price Index for January will be the highlight on Friday.
The US Dollar jumps after Trump said that 25% tariffs on Mexican and Canadian goods will go into effect on March 4 as scheduled because drugs are still pouring into the United States from those countries. Trump added that goods from China will be subject to an extra 10% duty.
The path of interest rate cuts by the Federal Reserve (Fed) has become less clear, with markets pricing in 58 basis points (bps) of easing by year-end. Cleveland Fed President Beth Hammack said she expects US central bank interest rate policy is on hold for the time being. Philadelphia Federal Reserve Bank President Patrick Harker expressed support for continuing to hold the interest rate in the current range.
On the Swiss front, the softer Consumer Price Index (CPI) data for January has triggered expectations of further rate cuts by the Swiss National Bank (SNB) in March. Inflation eased to 0.4%, its lowest level in nearly four years. Meanwhile, the uncertainty and escalating geopolitical tensions in the Middle East could boost the safe-haven flows, benefiting the Swiss Franc (CHF).
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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