- USD/CHF may appreciate further due to fading odds of bumper rate cuts by the Fed in 2024.
- The US Dollar receives support from market caution ahead of the US presidential election.
- The recent lower Swiss inflation rate increased the dovish sentiment surrounding the SNB.
USD/CHF remains steady after registering losses in the previous session, maintaining its position above 0.8650 during Asian trading hours on Friday. This level is near its two-month peak of 0.8686, reached on Wednesday.
The strength of the USD/CHF pair could be linked to the robust performance of the US Dollar (USD), driven by rising expectations that the Federal Reserve (Fed) will take a less aggressive approach to interest rate cuts than previously thought.
Additionally, the Greenback is bolstered due to uncertainties regarding the upcoming US presidential election. Vice President Kamala Harris leads in the six-day poll, which closed on Monday, held a marginal 46% to 43% lead over former President Donald Trump, a new Reuters/Ipsos poll found.
On Thursday, Republican nominee Donald Trump stated that the Trump administration will build an economy that lifts up all communities in the United States (US). Meanwhile, Vice President Kamala Harris enjoyed the backing of rock legend Bruce Springsteen, entertainer Tyler Perry, and former President Barack Obama at a rally in Georgia.
The Swiss Franc (CHF) could face challenges due to heightened expectations of another interest rate cut by the Swiss National Bank (SNB) at its upcoming December meeting. This could be attributed to the recent inflation rate, which stood at 0.8% in September, marking a three-year low and down from 1.1% the previous month.
The Swiss Franc may restrain its downside due to safe-haven flows amid uncertainties regarding Middle East situation. Traders watch for Israel's response to Iran's missile attack on October 1. In parallel, US and Israeli officials are preparing to resume talks on a potential ceasefire and the release of hostages in Gaza in the coming days.
US Secretary of State Antony Blinken stated Thursday that the United States does not support a prolonged Israeli campaign in Lebanon, while France has advocated for an immediate ceasefire and diplomatic efforts.
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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