- The USD/CHF is strengthened about 0.7965 in the first bars of the European session on Friday.
- It is reported that Trump is changing to a mode of negotiation with China.
- Concerns about the independence of the Fed could drag the US dollar down.
The USD/CHF pair operates in a positive note around 0.7965 during the early European session on Friday. Optimism around US trade agreements provides some support for the dollar. However, the bullish potential for the pair could be limited, since the markets could become cautious before crucial events next week.
The Wall Street Journal (WSJ) reported Friday that US president Donald Trump is now pursuing negotiations with China. Trump could change from a negotiation pressure strategy, with the aim of ensuring an economic agreement that increases US access to Chinese markets, particularly in business and technology. These positive developments relieve the fears of commercial tensions between the two largest economies in the world and weaken the safe refuge currency, such as the Swiss Franco (CHF).
On Thursday night, Trump increased pressure on the president of the Fed, Jerome Powell, with a visit to the Fed offices in Washington. Trump and Powell discussed the costs of the ongoing renovations at the headquarters of the Fed. Any surprise movement that climbs the tensions between the administration and the US Central Bank could drag the US dollar (USD) down against the CHF in the short term.
The orders of the US durable goods will be published later on Friday. All eyes will be placed at the monetary policy meeting of the Federal Open Market Committee (FOMC) next week. It is anticipated that the FOMC maintains the rate without changes in its July meeting, since those responsible for the policy prefer to expect clarity on the expected impact of tariffs on inflation. Financial markets have discounted almost 60% probability of a rate cut of 25 basic points (PBS) in September, according to the CME Fedwatch tool.
Swiss Franco – Frequently Questions
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.
