USD/CHF weakens below 0.8500, eyes on Swiss CPI, GDP data
|- USD/CHF loses traction around 0.8490 in Monday’s early European session.
- The US NFP for August will take center stage on Friday.
- The rising Middle East geopolitical tensions might lift the Swiss Franc against the US Dollar.
The USD/CHF pair edges lower to near 0.8490 during the early European trading hours on Monday. The downtick of the pair is backed by the weakening of the US Dollar (USD) amid the growing speculation that the US Federal Reserve (Fed) will cut the rate in the September meeting. The Swiss August Consumer Price Index (CPI) and Gross Domestic Product (GDP) for the second quarter will be released on Tuesday. The Swiss economy is projected to grow 0.5% QoQ in Q2.
The US Federal Reserve’s (Fed) dovish stance continues to weigh on the Greenback. Atlanta Fed President Raphael Bostic, a prominent hawk on the FOMC, said last week that it might be time to lower its borrowing cost due to further cooling inflation and a higher-than-expected Unemployment Rate.
Alex Ebkarian, chief operating officer at Allegiance Gold, said that the PCE report confirmed inflation is no longer the Fed's main concern, as they have shifted their focus to unemployment data, which further validates the potential rate cuts in September. Investors will closely watch the release of US employment data on Friday, including the Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings for August.
The NFP is forecasted to show 163K job additions in August, while the Unemployment Rate is estimated to tick lower to 4.2% in the same period. Any signs of the weakness in the US labor market might prompt the expectation of a Fed rate cut, which further exerts some selling pressure on the USD.
The ongoing geopolitical tensions in the Middle East could boost the safe-haven currency like the Swiss Franc (CHF). The news agency CNN reported early Monday that protests have broken out across Israel after the country’s military recovered the bodies of six hostages it said Hamas had killed in Gaza. Israel’s largest labor group has called for a strike, saying the “entire Israeli economy will shut down.”
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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