- USD/CHF halts its winning streak as safe-haven Swiss Franc receives support from rising Middle-East tensions.
- The CHF faced challenges as softer inflation data bolstered expectations of SNB’s 50 basis point rate cut in December.
- The US Dollar receives downward pressure as US Treasury yields lose ground.
USD/CHF breaks its four-day winning streak, trading around 0.8510 during Friday’s Asian session. The Swiss Franc (CHF) receives support from the safe-haven flows amid rising Middle-East tensions. US President Joe Biden mentioned that the United States is in talks with Israel regarding potential strikes on Iran's Oil infrastructure.
Moreover, Israeli Prime Minister Benjamin Netanyahu warned that Iran "will pay a heavy price" for Tuesday’s attack, which reportedly involved the launch of at least 180 ballistic missiles at Israel, according to the BBC.
The Swiss Franc (CHF) faced downward pressure following Thursday's weaker-than-expected inflation data, which has raised the likelihood of dovish policymakers advocating for a 50 basis point rate cut by the Swiss National Bank (SNB) in December. Previously, the SNB had already lowered the key interest rate by 25 basis points for the third consecutive time.
Switzerland's Consumer Price Index rose 0.8% year-over-year in September, down from both market expectations and August's figure of 1.1%. This is the lowest inflation rate since September 2021. Additionally, the monthly inflation rate dropped by 0.3%, exceeding forecasts of a 0.1% decline, after remaining flat in August.
The US Dollar (USD) breaks its winning streak amid subdued US Treasury yields. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, trades around 101.90 with 2-year and 10-year yields on US Treasury bonds standing at 3.70% and 3.845, respectively, at the time of writing.
Federal Reserve Bank of Chicago President Austan Goolsbee reiterated on Thursday that the interest rates need to come down over the next year by “a lot.” Goolsbee further stated that he’d like to keep the unemployment rate at 4.2% from rising any further.
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 stays defensive toward 1.1000, as US NFP data looms
EUR/USD stays defensive toward 1.1000 in the European session on Friday. The pair lacks a clear directional impetus, as traders refrain from placing fresh bets ahead of the key US Nonfarm Payrolls data. The focus remains on ECB-speak as well.
GBP/USD holds recovery above 1.3150 after BoE Pill's comments
GBP/USD holds recovery gains above 1.3150 in European trading on Friday. Prudent remarks from BoE Chief Economist Huw Pill on interest rates offer a fresh lift to the Pound Sterling. Further upside, however, appears elusive as caution prevails ahead of the US Nonfarm Payrolls data.
Gold price sticks to modest gains near weekly top, bulls seem non-committed ahead of US NFP
Gold price (XAU/USD) struggles to capitalize on its modest intraday uptick and remains below the weekly top through the early part of the European session on Friday.
Nonfarm Payrolls set to grow moderately in September as markets mull bets of another big Fed rate cut
Economists expect the Nonfarm Payrolls report to show that the US economy added 140,000 jobs in September, following a job gain of 142,000 reported in August.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.