- USD/CHF weakens to around 0.8750 in the early European session on Thursday.
- Investors prepare for the US Fed’s rate decision on Thursday.
- Safe haven demand could boost the Swiss Franc against the Dollar.
The USD/CHF pair weakens near 0.8750 during the early European trading hours on Thursday. Traders may prefer to stay on the sidelines ahead of the US Federal Reserve’s (Fed) interest rate decision on Thursday.
The bearish side of the US Dollar (USD) could be limited as traders expect a Donald Trump presidency to increase inflation and reduce the pace of interest rate cuts. However, markets could turn cautious later in the day ahead of the US Fed policy meeting. The US central bank is widely expected to cut interest rates by 25 basis points (bps). . According to the CME’s FedWatch tool, markets have priced in a nearly 98% chance of a quarter-point taper and about a 70% chance of a similar-sized move in December.
On the Swiss front, data released by the State Secretariat for the Economy (SECO) on Tuesday showed that the seasonally adjusted unemployment rate in Switzerland reached 2.6% in October. The figure remained unchanged compared to September.
Swiss National Bank (SNB) President Martin Schlegel said last week that the central bank could cut interest rates further to maintain price stability in the medium term. Markets have currently priced in a 72% chance of a 25 bps cut and a 28% chance of a 50 bps cut at the December meeting.
Meanwhile, uncertainty over the global economic outlook and ongoing geopolitical risks could boost safe-haven flows, benefiting the Swiss Franc (CHF). As the Middle East teeters on the brink of war, with Iran threatening to react to an Israeli attack on its territory earlier this month, there are concerns that Trump’s victory could allow Netanyahu to attack Iran’s nuclear facilities. , something the Biden administration has warned against, according to CNN.
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.
