- The USD/ChF weakens around 0.8230 in the first bars of the European session on Friday.
- The persistent uncertainties related to trade drive safe refuge flows, supporting the Swiss Franco.
- The Personal Consumption Price Index (PCE) of the US will be the Center for Care later on Friday.
The USD/ChF pair loses land about 0.8230 during the early European session on Friday. The Swiss Franco (CHF) advances against the US dollar (USD) due to the persistent uncertainties related to trade.
A Federal Court of Appeals, late on Thursday, temporarily paused a broad ruling against the global tariffs of US President Donald Trump while taking more time to consider the administration’s request for a more lasting suspension. In addition, the Wall Street Journal (WSJ) reported that “the administration of President Donald Trump is considering an existing law that includes a language that allows tariffs of up to 15% for 150 days.”
However, Trump has not made a final decision. The unpredictable policy of the administration, together with the geopolitical tensions in the Middle East and the in progress between Russia and Ukraine, could support a safe refuge currency such as the CHF and create a wind against for the pair.
After five consecutive rate cuts, it is anticipated that the Swiss National Bank (SNB) cuts its 0% reference rate at the next monetary policy meeting on June 19. That would end a period of positive monetary policy, the lowest in almost three years. The president of the SNB, Martin Schlegel, said that the Swiss Central Bank would go below zero if necessary. However, that does not seem imminent for now, with only a handful of responsible for the SNB waiting for such a movement this year.
The operators expect the report of the Personal Consumption Expenditure Index (PCE) of the USA that will be published later on Friday to obtain a new impulse. In addition, the final reading of the Michigan consumer and the Chicago Purchasing Manager Index (PMI) will be published. If the reports show better results than expected, this could raise the USD in the short term.
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.
