- The USD/Chf lowers about 0.8135 in the European session on Tuesday.
- The ongoing conflict between Israel and Iran drives safe refuge flows, benefiting the Swiss Franco.
- The operators expect the US retail sales data on Tuesday before the decision on the Fed interest rates.
The USD/CHF pair softens around 0.8135 during the early European session on Tuesday. The persistent geopolitical risks in the Middle East provide some support to the Swiss Franco (CHF) against the US dollar (USD). The operators prepare for the retail sales data of the US USA, which will be published later on Tuesday.
The conflict between Israel and Iran has entered its fifth day despite the so -called World Cups and Descalada. Late on Monday, US President Donald Trump requested the evacuation of the Iranian capital, Tehran, hours after urging the country’s leadership to accept an agreement to limit his nuclear program, although Israel indicated that the attacks would continue. High geopolitical tensions in the Middle East probably increase the safe refuge flows, supporting the CHF in the short term.
However, any sign of relaxation of geopolitical tensions could drag the ChF down and act as a favorable wind for the pair. There was some hope on Monday that the situation did not get worse when they will allegedly asked many countries to press Israel for a high fire.
The decision on the interest rates of the Federal Reserve (FED) will occupy a central place on Wednesday, and it is expected to keep the stable interest rates at its June meeting. Future markets expect two rates cuts for the end of the year, possibly starting in September, backed by softer inflation data last week.
The operators will take more clues from the FOMC press conference. “If the Fed delivers moderate maintenance as we hope, the dollar is likely to resume its weakening due to the deterioration of the fundamental background in the US,” said Win Thin, global market chief of market strategy at Brown Brothers Harriman.
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.
