- The USD/CHF operates in negative terrain about 0.8330 in the first bars of the European session on Friday.
- Weak inflation reports drag the US dollar down.
- The moderate SNB position could limit the Chf’s bullish potential.
The USD/CHF pair extends the fall to around 0.8340 during the early European session on Friday. Production prices and consumer inflation in the US weigh on the US dollar (USD). Later on Friday, investors will focus on the publication of the production and import prices report of Switzerland for April.
The US Production Price Index (PPI) rose 2.4% year -on -year in April, after the 2.7% increase in March, according to the Office of Labor Statistics on Thursday. This figure was below the market expectation of 2.5%. Earlier this week, the data showed that the US CPI increased by 2.3% year -on -year in April, compared to an increase of 2.4% in March. This reading was below the market expectation of 2.4%.
The markets are now valuing almost 75.4% probability for the first cut of at least 25 basic points (PB) at the September meeting of the Central Bank, according to LSE data. Some analysts believe that Fed officials could wait until December.
The president of the FED, Jerome Powell, said Thursday that the officials of the US Central Bank feel that they need to reconsider the key elements around jobs and inflation in their approach to monetary policy, given the inflationary experience of recent years. Meanwhile, the governor of the FED, Michael Barr, said that the economy is in a solid base with inflation moving towards the objective of 2% of the central bank, but commercial policies have increased uncertainty about perspectives.
Economic uncertainty could weigh on the feeling, which benefits the status of a relative refuge of the Swiss Franco (CHF) and acts as a wind against for the USD/CHF torque. However, the moderate posture of the Swiss National Bank (SNB) could limit the Chf’s bullish potential. The president of the SNB, Martin Schlegel, emphasized that the Swiss Central Bank was ready to cut the rates below zero if inflation remains below its target.
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.
