- The USD/CHF fights while the US dollar loses ground after disappointing US economic data.
- The operators anticipate that the Fed will maintain its current position for a prolonged period due to continuous uncertainty.
- The Swiss Franco was strengthened as the 10 -year Swiss government bonus yield increased.
The USD/CHF remains under pressure per fourth consecutive session, around 0.8970 during the Asian negotiation hours on Tuesday. The fall of the torque is driven by a weaker US dollar (USD), affected by disappointing US economic data, including unemployment claims last week and the Global Purchasing Manager Index (PMI) of Global S&P.
The operators continued to evaluate the perspectives of interest rates, with the Federal Reserve (FED) expected to maintain their current position for a prolonged period, amid the continuous uncertainty about the economic policies of President Trump.
Adding to the uncertainty of the market, the president of the Bank of the Federal Reserve of Chicago, Austan Goolsbee, declared on Monday that the Central Bank of the United States requires more clarity before considering cuts of interest rates. Goolsbee said that if government policies lead to a price increase, the Fed is legally obliged to address them.
The American dollar index (DXY), which tracks the USD compared to six main currencies, has fallen to around 106.50, while the yields of the US Treasury bonds have also decreased, with the yield to 2 years falling to 4.14% and 10 years to 4.37% at the time of writing.
Meanwhile, the Swiss Franco (CHF) found support as the 10 -year Swiss government bonus performance rose in the midst of anticipation of the result of the German federal elections last week. Friedrich Merz, leader of the Christian Democratic Union of Germany (CDU), is prepared to become the next German chancellor after ensuring a majority of votes. However, Merz is expected to face significant challenges, including complex coalition negotiations.
In the domestic front, the softest data of the Swiss consumer price index (IPC) for January have raised the expectations of greater relief by the Swiss National Bank (SNB) in March. Inflation has fallen to 0.4%, its lowest level in almost four years. In December, the SNB cut the interest rates at 50 basic points and pointed out the possibility of additional rate cuts in the future.
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.
