- USD/CHF extends the rally to near 0.8970 in Thursday’s early European session.
- Global economic uncertainties and geopolitical tensions could boost the Swiss Franc.
- The estimate of the US Q4 GDP data will be in the spotlight later on Thursday.
The USD/CHF pair trades in positive territory for the second consecutive day around 0.8970 during the early European session on Thursday. A modest recovery in the US Dollar (USD) provides some support to the pair. The estimate of US Gross Domestic Product (GDP) for the fourth quarter (Q4) will take center stage later on Thursday.
The renewed levy of tariffs by US President Donald Trump on Canadian and Mexican imports has raised concerns about global trade tensions. Any signs of trade tensions, economic uncertainty and ongoing geopolitical tensions could drive demand for safe-haven currencies like the Swiss Franc (CHF) and create a headwind for USD/CHF.
Worries over US economic growth have boosted expectations that the Federal Reserve (Fed) would deliver at least two rate cuts this year. This, in turn, might cap the upside for the pair. US consumer confidence declined the most since August 2021, falling to 98.3 in February versus 105.3 prior, according to the Conference Board.
Meanwhile, New Home Sales in the US fell by 10.5% MoM to 657,000 units in January from 734,000 units (revised from 698,000) in the previous reading, according to the Commerce Department's Census Bureau on Wednesday. This figure came in weaker than the 680,000 units expected. Investors will closely monitor the US Q4 GDP report, which is due later on Thursday. In case of a stronger-than-expected outcome, this could lift the Greenback.
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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