- USD/CHF meets with a fresh supply and is pressured by a combination of factors.
- US recession fears and Fed rate cut bets weigh on the USD and the currency pair.
- The global flight to safety benefits the CHF and contributes to the offered tone.
The USD/CHF pair attracts fresh sellers during the Asian session on Wednesday and erodes a major part of the previous day's modest recovery gains. Spot prices drop back closer to mid-0.8100s in the last hour and remain well within striking distance of a ten-year low touched last Friday amid a broadly weaker US Dollar (USD).
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near its lowest level since April 2022 amid the weakening confidence in the US economy. Furthermore, bets that the Federal Reserve (Fed) will resume its rate-cutting cycle soon and lower borrowing costs by 100 basis points in 2025 continue to dent the appeal for the buck. This, in turn, is seen as a key factor exerting downward pressure on the USD/CHF pair.
Meanwhile, the initial market reaction to US President Donald Trump's decision last week to pause sweeping reciprocal tariffs for 90 days turned out to be short-lived amid concerns over a US recession and the escalating US-China trade war. Moreover, Trump's rapidly shifting stance on trade tariffs fuels uncertainty and weighs on investors' sentiment. This benefits the safe-haven Swiss Franc (CHF) and contributes to the offered tone surrounding the USD/CHF pair.
The aforementioned fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside and supports prospects for an extension of a three-month-old downtrend, from the year-to-date high touched in January. Traders, however, might opt to wait for Fed Chair Jerome Powell's appearance later during the US session for cues about the rate-cut path. In the meantime, the US Retail Sales data might influence the USD and the USD/CHF pair.
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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