- USD/CHF gains ground to near 0.8575 in Wednesday’s early European session.
- Reduced bets of a jumbo Fed rate cut in November support the USD ahead of the FOMC Minutes.
- The escalating Middle East geopolitical tensions might cap the pair’s upside.
The USD/CHF pair trades on a stronger note to around 0.8575 during the early European session on Wednesday. The firmer US Dollar (USD) amid diminishing odds for more aggressive rate cuts by the Federal Reserve (Fed) underpins the pair. The release of the Federal Open Market Committee (FOMC) Minutes will take center stage later on Wednesday.
The stronger-than-expected jobs report last Friday lifts the Greenback and had markets tempering the expected scale of upcoming interest rate reductions. Boston Fed President Susan Collins stated that as inflation trends weaken, it is quite likely that the Fed will cut the interest rates further. Meanwhile, Atlanta Fed President Raphael Bostic stated that the jobs market is not showing signs of weakness, adding that despite significant progress on inflation, overall price figures have not yet hit target levels.
Later this week, traders will shift their attention to the US Consumer Price Index (CPI) inflation report on Thursday, which might offer some hints about the future Fed easing cycle. The headline CPI is expected to see an increase of 2.3% YoY in September, while the core CPI is estimated to see a rise of 3.2% YoY during the same period. Any signs of easing inflation might weigh on the USD and cap the upside for USD/CHF.
Hezbollah's senior leader said on Tuesday that it supports attempts to achieve a ceasefire in Lebanon, marking the first time the group has officially accepted a truce and not conditioned it on stopping the war in Gaza, per CNN. A possible ceasefire between Hezbollah and Israel alleviated fears of a wider war in the Middle East. However, the negative development surrounding geopolitical risks in the region 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.
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