- The USD/CHF could be under pressure in the middle of growing expectations of additional monetary relief by the Swiss National Bank.
- The attractiveness of the Swiss Franco as a safe refuge can weaken as global commercial tensions show signs of relief.
- Trump said he is working to improve US access to Chinese markets and characterized relations between the US and China as “excellent.”
The USD/ChF pair continues to lose ground for the second consecutive day, quoting about 0.8390 during the Asian session on Wednesday. The downward risks seem limited, since the growing expectations of greater monetary relief by the Swiss National Bank (SNB) weaken to the Swiss Franco (CHF).
Last week, the president of the SNB, Martin Schlegel, reaffirmed the provision of the Central Bank to intervene in the currency market and potentially cut interest rates, even in negative territory, if inflation remains persistently below its goal.
Meanwhile, the attractiveness of the Swiss Franco as a safe refuge can face winds against due to the relaxation of global commercial tensions. Reports suggest that the US and China have reached a preliminary agreement to significantly reduce tariffs. According to the proposed agreement, US tariffs on Chinese goods would be reduced from 145% to 30%, while China would reduce tariffs on US imports from 125% to 10%. This movement is widely seen as a constructive step towards the de -escalation of commercial friction between the two nations.
Adding to optimism, US president Donald Trump told Fox News that the US is working to expand access to Chinese markets and described bilateral relations with China as “excellent.” He also expressed his opening to direct conversations with President Xi Jinping in search of a comprehensive commercial agreement.
On the other hand, the recent weakness of the US dollar (USD) has contributed to the volatility of the USD/CHF. The dollar fell under pressure after US inflation data was weaker than expected. Market attention now focuses on the next US key data launches, including the producer price index (IPP) and the consumer’s feeling survey at the University of Michigan, both scheduled for later this week.
The US Consumer Price Index (CPI) of April rose 2.3% year -on -year, slightly below the 2.4% increase in March and market expectations. The underlying IPC, which excludes food and energy, advanced 2.8% annually, coinciding both with the previous month and with consensus estimates. In monthly terms, both the general and underlying CPI recorded a gain of 0.2%.
Franco Swiss faqs
The Swiss Franco (CHF) is the official currency of Switzerland. It is among the ten most negotiated coins worldwide, reaching volumes that far exceed the size of the Swiss economy. Its value is determined by the general feeling of the market, the country’s economic health or the measures taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franco was linked to the euro (EUR). The link was eliminated abruptly, which resulted in an increase of more than 20% in the value of the Franco, which caused a turbulence in the markets. Although the link is no longer in force, the fate of the Swiss Franco tends to be highly correlated with that of the euro due to the high dependence of the Swiss economy of neighboring Eurozone.
The Swiss Franco (CHF) is considered a safe shelter asset, or a currency that investors tend to buy in times in markets. This is due to the perception of Switzerland in the world: a stable economy, a strong export sector, great reserves of the Central Bank or a long -standing political position towards neutrality in global conflicts make the country’s currency a good option for investors fleeing risks. It is likely that turbulent times strengthen the value of the CHF compared to other currencies that are considered more risky to invest.
The Swiss National Bank (BNS) meets four times a year (once each quarter, less than other important central banks) to decide on monetary policy. The bank aspires to an annual inflation rate of less than 2%. When inflation exceeds the objective or it is expected that it will be overcome in the predictable future, the bank will try to control the growth of prices raising its type of reference. The highest interest rates are usually positive for the Swiss Franco (CHF), since they lead to greater returns, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the CHF.
Macroeconomic data published in Switzerland are fundamental to evaluate the state of the economy and can affect the assessment of the Swiss Franco (CHF). The Swiss economy is stable in general terms, but any sudden change in economic growth, inflation, current account or foreign exchange reserves have the potential to trigger movements in the CHF. In general, high economic growth, low unemployment and a high level of trust are good for Chf. On the contrary, if the economic data suggests to a weakening of the impulse, the CHF is likely to depreciate.
As a small and open economy, Switzerland depends largely on the health of the neighboring economies of the Eurozone. The European Union as a whole is the main economic partner of Switzerland and a key political ally, so the stability of macroeconomic and monetary policy in the Eurozone is essential for Switzerland and, therefore, for the Swiss Franco (CHF). With such dependence, some models suggest that the correlation between the fate of the euro (EUR) and the Swiss Franco is greater than 90%, or almost perfect.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
