USD/CHF reaches two-month highs near 0.8700 as traders expect nominal rate cuts by the Fed

USD/CHF extends its gains as recent US data fade the likelihood of a bumper rate cut by the Fed.
Former President Donald Trump’s allies have faced at least 10 court defeats that could impact the outcome of the election.
The Swiss Franc could experience a decrease in safe-haven demand due to the easing tensions in the Middle East.

USD/CHF continues to gain ground as the US Dollar (USD) strengthens as recent positive economic data from the United States (US) has fueled expectations for a more cautious stance from the Federal Reserve (Fed) in November. The USD/CHF pair reaches two-month highs around 0.8700 during the Asian hours on Monday.

On Friday, data showed that the US Michigan Consumer Sentiment Index increased to 70.5 in October, up from 68.9 previously, surpassing the expected forecast of 69.0. In addition, Durable Goods Orders fell by 0.8% month-over-month in September, which was a smaller decline than the anticipated 1.0% drop.

The US Dollar receives support from the higher Treasury yields. The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades around 104.50 with 2-year and 10-year yields on US Treasury bonds standing at 4.12% and 4.27%, respectively, at the time of writing.

Regarding US presidential election, Over the past three weeks, allies of former President Donald Trump have faced at least 10 court defeats in key battleground states that could impact the outcome of the November 5 election between Republican candidate Trump and his Democratic opponent, Vice President Kamala Harris.

The Swiss Franc (CHF) may encounter difficulties as expectations rise for another interest rate cut by the Swiss National Bank (SNB) at its upcoming December meeting. Traders are likely to keep an eye on the Consumer Price Index (CPI) for October, set to be released later this week.

Additionally, the Swiss Franc could experience a decrease in safe-haven demand due to the easing of geopolitical tensions following Israel's airstrikes on Iran early Saturday. These strikes, aimed at missile and air defense sites, were less aggressive than many had anticipated. Iran has downplayed the damage, with Supreme Leader Ayatollah Ali Khamenei stating that the attack "should neither be downplayed nor exaggerated."

Swiss Franc FAQs

What key factors drive the Swiss Franc?

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.

Why is the Swiss Franc considered a safe-haven currency?

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.

How do decisions of the Swiss National Bank impact the Swiss Franc?

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.

How does economic data influence the value of the Swiss Franc?

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.

How does the Eurozone monetary policy affect the Swiss Franc?

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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