- USD/CHF falls to 0.8770 in the early European session on Tuesday, down 0.19% on the day.
- The SNB is expected to cut its key policy rate by 25 basis points on Thursday.
- Friday’s US jobs data boosted anticipation of a Fed rate cut next week.
The USD/CHF pair weakens around 0.8770 during the early European session on Tuesday. The Swiss Franc (CHF) rally is fueled by increased turmoil in the Middle East, increasing safe haven flows. The release of the US November Consumer Price Index (CPI) and the Swiss National Bank (SNB) interest rate decision will be the highlights of this week.
Turbulence in the Middle East increased over the weekend when Syrian President Bashar al-Assad and his family fled to Moscow and were granted political asylum, ending 50 years of brutal dictatorship. The fall of Bashar al-Assad’s regime could lead to a conflict involving countries in the region, raising safe haven currencies such as the CHF against the Dollar. “The fall of the government in Syria could see safe haven demand,” analysts at ANZ Group Holdings said.
The SNB is expected to cut its key policy rate by 25 basis points (bps) at its December meeting on Thursday. More than 85% of economists estimated the Swiss central bank would cut its main rate by 25 bps to 0.75% on Thursday, according to a Reuters poll. Christian Schulz, the deputy chief European economist at Citi, expected the SNB to lower its near-term forecasts again, adding, “The SNB’s guidance will likely remain dovish.” This, in turn, could weaken the CHF and act as a tailwind for the USD/CHF.
On the other hand, traders increased their bets on another rate cut by the US Federal Reserve (Fed) at the December meeting after Friday’s US jobs report. Data released Friday showed U.S. job growth rose in November, but a rise in the unemployment rate to 4.2% pointed to a slowing labor market that should allow the Fed to cut interest rates. interest again this month. Traders will be watching the US inflation report on Wednesday for fresh impetus.
Swiss Franc FAQs
The Swiss Franc (CHF) is the official currency of Switzerland. It is among the ten most traded currencies globally, reaching volumes that far exceed the size of the Swiss economy. Its value is determined by general market sentiment, the economic health of the country or measures taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the value of the franc, causing turbulence in the markets. Although the peg is no longer in force, the fortunes of the Swiss franc tend to be highly correlated with that of the euro due to the Swiss economy’s high dependence on the neighboring eurozone.
The Swiss Franc (CHF) is considered a safe haven asset, or a currency that investors tend to buy during times of market stress. This is due to the perception of Switzerland in the world: a stable economy, a strong export sector, large central bank reserves or a long-standing political stance towards neutrality in global conflicts make the country’s currency a good option for investors who shy away from risks. Turbulent times are likely to strengthen the value of CHF against other currencies that are considered riskier to invest in.
The Swiss National Bank (SNB) meets four times a year (once a quarter, less than other major central banks) to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation exceeds the target or is expected to exceed it in the foreseeable future, the bank will attempt to control price growth by raising its reference rate. Higher interest rates are usually positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the CHF.
Macroeconomic data published in Switzerland is essential to assess the state of the economy and can affect the valuation of the Swiss Franc (CHF). The Swiss economy is broadly stable, but any sudden changes in economic growth, inflation, current account or central bank foreign exchange reserves have the potential to trigger moves in the CHF. In general, high economic growth, low unemployment and high confidence are good for the CHF. Conversely, if economic data points to weakening momentum, the CHF is likely to depreciate.
As a small, open economy, Switzerland relies heavily on the health of neighboring Eurozone economies. The European Union as a whole is Switzerland’s main economic partner 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 Franc (CHF). With such dependence, some models suggest that the correlation between the fortunes of the Euro (EUR) and the Swiss Franc 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.
