- USD/CHF lowers around 0.8990 at the Early Asian Session on Monday.
- The weak retail sales of the United States undermine the US dollar.
- Uncertainty and geopolitical risks could boost safe refuge flows, benefiting the Swiss Franco.
The USD/CHF pair extends its fall to around 0.8990 during the early European session, pressed by the weakening of the US dollar (USD). Patrick Harker and Michelle Bowman of the Federal Reserve (Fed) will later speak on Monday. On Tuesday, Swiss industrial production will be published.
The US retail sales fell in January for the most in almost two years, weighing on the US dollar. The data published by the US Census Office on Friday showed that US retail sales fell 0.9% in January compared to an increase of 0.7% (reviewed from 0.4%) above. This figure was weaker than the estimation of a 0.1%decrease. The operators increased the bets that the Fed would cut interest rates again as soon as in June.
Meanwhile, US industrial production increased 0.5% monthly in January, compared to 1.0% (reviewed from 0.9%) in December. This reading was better than the estimation of an increase of 0.3%.
Trump administration officials are preparing to meet with Russian officials on Tuesday in Saudi Arabia to discuss a possible agreement to end the war in Ukraine. If conversations between American and Russian officials improve the chances of reaching a peace agreement that ends war, the demand for the purchase of safe refuge could decrease. However, uncertainty and geopolitical concerns will probably boost the Swiss Franco (CHF).
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 Although the link is no longer in force, the fate of the Swiss Franco tends to be highly correlated with that of the euro due to the high dependence of the Swiss economy of neighboring Eurozone.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.
