- USD/CHF trades stronger near 0.8835 in the early European session on Tuesday.
- Fed Easing Bets Reduced by Trump Policy Outlook and Strong US Economic Data
- Geopolitical risks could boost the Swiss Franc and create a headwind for the pair.
The USD/CHF pair rises to around 0.8835 during the early European session on Tuesday, boosted by the firmer US Dollar. Switzerland’s trade balance for October will be published later on Tuesday. Additionally, Jeffrey Schmid of the Federal Reserve (Fed) is scheduled to speak.
Strong US economic data and possible inflation from proposed tariffs have fueled speculation that the Fed would slow the path of rate cuts, supporting the US dollar (USD). Furthermore, cautious comments from Fed Chairman Jerome Powell contribute to the rise of the USD. Powell emphasized that robust economic growth, a strong labor market and inflation that remains above the 2% target mean the US central bank does not need to rush to lower interest rates.
Investors await comments from Fed officials for more clues on the path of US interest rates. Markets have reduced bets on a 25 basis point (bp) interest rate cut at the meeting December to less than 59%, compared to 62% the previous day, according to CME FedWatch.
However, growing concerns over the Russia-Ukraine conflict and ongoing geopolitical tensions in the Middle East could boost safe-haven flows, benefiting the Swiss Franc. Joe Biden has allowed Ukraine to strike inside Russia with long-range US missiles for the first time, according to CNN News on Sunday. US sources said Ukraine plans to carry out its first long-range strikes in the coming days, while Russia vowed to retaliate for what it called a “radical shift” in the war.
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 Although the peg is no longer in force, the fortunes of the Swiss franc tend to be highly correlated with that of the euro due to the Swiss economy’s high dependence on the neighboring eurozone.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.
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