- USD/CHF gains ground to near 0.8835 in the early European session on Wednesday.
- Investors increase bets on a Fed rate cut this month to 86%.
- The SNB is likely to cut rates by 25 bps at the December meeting on Thursday.
The USD/CHF pair is trading in positive territory for the fourth consecutive day around 0.8835 during the early European session on Wednesday. The pair’s rally is fueled by a stronger Dollar due to increased bets on a less dovish stance from the US Federal Reserve (Fed). Investors will be keeping an eye on the Consumer Price Index (CPI) data ) November US, which will be published later on Wednesday. Attention will focus on the Swiss National Bank (SNB) interest rate decision on Thursday.
US CPI inflation data released on Wednesday is the last major piece of data that Fed officials will consider before meeting next week to decide on interest rates. A modest increase is unlikely to deter Fed policymakers from cutting its key rate by a quarter point. The odds of a 25 basis point (bp) rate cut at the Fed’s December meeting are high, with 86% of investors expecting a cut, according to the CME FedWatch tool.
On the Swiss front, the SNB is widely expected to deliver a quarter-point rate cut to 0.75% at its December meeting on Thursday. “Market pricing may make a 25bp rate cut a slightly hawkish surprise, but we still see no reason – and also little chance of lasting success in exchange rate terms – for larger cuts given the resilient economy and stable exchange rate,” said Christian Schulz, deputy chief economist for Europe at Citi. However, he anticipates that the Swiss central bank will lower its short-term forecasts again, adding, “The SNB’s guidance will probably remain dovish.”
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 Although the peg is no longer in force, the fortunes of the Swiss franc tend to be highly correlated with that of the euro due to the Swiss economy’s high dependence on the neighboring eurozone.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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