- USD/CHF weaken to around 0.8855 in Wednesday’s early European session.
- Fed officials see interest rate cuts ahead, but only gradually, FOMC Minutes showed.
- The rising Middle East geopolitical tensions could boost the safe-haven currency like the Swiss Franc.
The USD/CHF pair softens to near 0.8855 during the early European session on Wednesday. The weakening of the US Dollar (USD) ahead of the US October inflation data weighs on the pair. Meanwhile, the US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, edges lower to near the weekly low as profit-taking set in.
Traders prefer to wait on the sidelines ahead of US PCE data, which is due later on Wednesday. The US markets will be closed for the Thanksgiving holiday on Thursday. However, the strong US economic data and the cautious stance of the US Federal Reserve (Fed) are likely to cap the upside for the USD in the near term. The Federal Open Market Committee (FOMC) Minutes from the November meeting released Tuesday showed that Fed officials see interest rate cuts ahead but at a gradual pace.
Traders pared back their expectations for an interest rate cut in December. Futures traders are now pricing in a 57.7% possibility that the Fed will cut rates by a quarter point, down from around 69.5% a month ago, according to the CME FedWatch Tool.
On Tuesday, Israel approved a ceasefire agreement with Lebanon’s Hezbollah militants that would end nearly 14 months of fighting linked to the war in the Gaza Strip, per the AP News. US President Joe Biden said the deal between Israel and Hezbollah involves Israeli forces withdrawing from Lebanon over 60 days, with Lebanon’s military taking control of areas in the country's south to ensure Hezbollah does not rebuild forces.
Investors will closely monitor the development surrounding the geopolitical risks. Any signs of the escalating tension 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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD regains 1.0500 and beyond as US Dollar wilts ahead of data
EUR/USD is extending the rebound above 1.0500 in the European session on Wednesday. Traders cash in on the US Dollar long positions ahead of a series if top-tier US data, lifting the pair. The USD/JPY sell-off also adds to the US Dollar downside.
GBP/USD holds gains near 1.2600, US PCE data eyed
GBP/USD extends the bullish momentum to trade near 1.2600 in European trading on Wednesday. The pair remains underpinned by a sustained US Dollar weakness and risk-off sentiment as traders turn cautious ahead of top-tier US data releases.
Gold price climbs above $2,650 on trade war concerns, sliding US bond yields and softer USD
Gold price sticks to modest intraday gains near a two-day high, above the $2,650 level, through the first half of the European session as geopolitical risks and US President-elect Donald Trump's tariff plans drive haven flows for the second straight day.
US core PCE inflation set to hold steady, raising doubts on further Federal Reserve rate cut
The United States Bureau of Economic Analysis (BEA) is set to release the Personal Consumption Expenditures (PCE) Price Index data for October on Wednesday at 13:30 GMT.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.