- USD/CHF remains supported near 0.8560 with US PPI on the horizon.
- Surprisingly upbeat US employment and hot inflation data for September have eradicated the Fed 50 rate cut scenario.
- The SNB is expected to cut interest rates further this year.
The USD/CHF pair wobbles near the immediate support of 0.8560 in Friday’s European session. The Swiss Franc pair edges higher despite the US Dollar (USD) exhibits a subdued performance. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, falls slightly but remains close to an eight-week high of around 103.00.
The outlook of the US Dollar remains firm as traders are expecting the Federal Reserve (Fed) to cut interest rates again in the November policy meeting but at a gradual pace of 25 basis points (bps), according to the CME FedWatch tool.
Lately, market participants were anticipating the Fed to deliver another 50-bps cut next month, as seen in September. Market expectations for the Fed's sizeable rate cut waned after the blowout United States (US) job data and hotter-than-expected Consumer Price Index (CPI) report for September.
For more cues on the Fed’s interest rate outlook, investors will focus on the US Producer Price Index (PPI) data for September, which will be published at 12:30 GMT. The PPI report is expected to show that the headline producer inflation rose by 1.6%, slower than 1.7% in August year-on-year. On the contrary, the annual core PPI is estimated to have accelerated to 2.7% from the prior release of 2.4%.
In the Swiss economy, the Swiss National Bank (SNB) is expected to cut interest rates further this year. "With inflation being reasonably low in Switzerland and with an economy that could grow faster, that tends in the direction of a lower policy rate," Martin told an event organized by the Swiss Financial Analysts Association in Zurich, Reuters reported.
An improvement in the likelihood of more rate cuts from the SNB would keep the Swiss Franc (CHF) on the backfoot.
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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