- USD/CHF edges higher as robust US labor and inflation data have diminished the likelihood of bumper rate cuts by the Fed.
- Atlanta Fed President Raphael Bostic expects just one more interest rate cut of 25 basis points this year.
- The Swiss Franc strengthened as lower inflation in September reduced the need for the SNB to implement substantial rate cuts.
USD/CHF retraces its recent losses registered in the previous session, trading around 0.8630 during the early European hours on Wednesday. The US Dollar (USD) continues to gain support as robust US Employment and Consumer Price Index (CPI) data have dampened expectations of aggressive Federal Reserve (Fed) easing.
Markets are now anticipating a total of 125 basis points in rate cuts over the next 12 months. According to the CME FedWatch Tool, there is currently a 94.1% probability of a 25-basis-point rate cut in November, with no expectation of a larger 50-basis-point reduction.
On Tuesday, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, indicated that he expects only one additional interest rate cut of 25 basis points this year, in line with his projections from the US central bank's meeting last month. "The median forecast called for a total of 50 basis points in cuts, on top of the 50 basis points already implemented in September," according to Reuters.
On the Swiss side, the decline in the inflation rate to 0.8% in September, a three-year low, has alleviated the likelihood of aggressive rate cuts by the Swiss National Bank (SNB). This might have provided support for the Swiss Franc (CHF).
However, the yield on the 10-year Swiss government bond declined to 0.41% on Tuesday as traders assess the broader economic and financial environment. Bond yields are often a reflection of inflation expectations.
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 pressured below 1.0900 amid risk aversion
EUR/USD remains under pressure below 1.0900 in the European session on Wednesday. The pair faces downward pressure due to a renewed US Dollar upswing, as risk sentiment falters on China concerns. Dovish ECB expectations also undermine the pair.
GBP/USD remains heavy near 1.3000 after soft UK inflation data
GBP/USD stays under bearish pressure near 1.3000 in the European session. The data from the UK showed that the annual CPI inflation declined to 1.7% in September from 2.2% in August, weighing heavily on the Pound Sterling.
Gold price advances to three-week top amid risk-off mood, bullish USD might cap gains
Gold price scales higher for the second straight day on Wednesday – also marking the fourth day of a positive move in the previous five – and climbs a three-week high, around the $2,677-$2,678 region heading into the European session.
Bitcoin holds onto recent gains, with $70,000 in sight
Bitcoin’s price stabilizes around $67,000 on Wednesday after rallying and breaking above a key resistance barrier on Tuesday. The rise in BTC comes after US Spot ETFs recorded a second straight day of inflows of over $373 million on Tuesday.
British inflation dips to 1.7% in September
And speaking of inflation and Europe, inflation in Britain not only fell below 2% in September but came in significantly lower than expected (1.7%y-o-y vs 1.9% expected).
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.