USD/CHF strengthens to near 0.8850 ahead of US CPI inflation release
- USD/CHF gains ground to around 0.8840 in Wednesday’s early European session.
- The renewed US Dollar demand provides some support to the pair ahead of US CPI report.
- Global economic uncertainty and geopolitical tensions might boost the safe-haven flows, benefiting the CHF.
The USD/CHF pair trades in positive territory for the third consecutive day near 0.8840 during the early European session on Wednesday. The uptick of the pair is bolstered by the renewed US Dollar (USD) demand. Traders will keep an eye on the US February Consumer Price Index (CPI) inflation data, which is due later on Wednesday.
Meanwhile, the US Dollar Index (DXY), a measure of the USD's value relative to its most significant trading partners' currencies, rebounds to around 103.60 after bouncing off the multi-month lows near 103.20. Nonetheless, the Greenback faces some headwinds amid concerns mounted over a US slowdown and the impact of tariffs on global economic growth.
Market players will take more cues from the US CPI release on Wednesday. The headline CPI is expected to show an increase of 0.3% MoM in February. On an annual basis, headline inflation is forecast to show an increase of 2.9%, while core CPI is estimated to show a rise of 3.2% during the same reported period.
Houthi spokesman said late Tuesday that they will attack any Israeli ship that violates the group's ban on Israeli ships passing through the Red and Arabian Seas, the Bab al-Mandab Strait, and the Gulf of Aden, effective immediately. Heightened safe-haven demand amid growing concerns over global economic conditions and geopolitical tensions in the Middle East could boost the Swiss Franc (CHF) and create a headwind for USD/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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