- USD/CHF may continue to fall as market sentiment increases that the Fed will cut interest rates twice this year.
- US retail sales rose 0.4% month-on-month in December, missing market expectations for a 0.6% increase.
- The safe haven Swiss franc may struggle as Israel and Hamas are reported to have agreed to a peace deal.
USD/CHF remains stable after three days of losses, hovering near 0.9110 during Asian trading hours on Friday. However, the pair faced challenges as the US Dollar (USD) extended losses following weaker US retail sales data released on Thursday.
US retail sales increased 0.4% month-on-month in December, reaching $729.2 billion. This reading was weaker than market expectations of a 0.6% increase and lower than the previous reading of a 0.8% increase (revised from 0.7%).
Growing expectations that the Federal Reserve (Fed) will cut interest rates twice this year have driven US Treasury yields lower, with the 2-year and 10-year bonds currently at 4.23% and 4.60%, respectively. Both yields are on track for a weekly decline of more than 3%.
The USD/CHF pair faces challenges as the US Dollar Index (DXY), which tracks the performance of the USD against six major currencies, remains under pressure for the fifth consecutive session, trading near 109.00.
Federal Reserve Bank of Chicago President Austan Goolsbee said Thursday that he has become increasingly confident in recent months that the labor market is stabilizing at a level that resembles full employment, rather than deteriorate into something worse, according to Reuters.
The safe-haven Swiss Franc (CHF) may face headwinds as geopolitical tensions in the Middle East ease. Israel and Hamas have reportedly agreed to a deal to pause the conflict in Gaza after 15 months of war. According to CNN, the agreement is expected to come into force on Sunday, pending approval by the Israeli cabinet.
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 Although the peg is no longer in force, the fortunes of the Swiss franc tend to be highly correlated with that of the euro due to the Swiss economy’s high dependence on the neighboring eurozone.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.
