- USD/CHF extends gains after recession panic sell-off fades.
- Swiss manufacturers call on their central bank to counter the appreciation of the franc.
- US inflation data due in the coming days could further weigh on the pair.
USD/CHF is up nearly half a percentage point on Monday to trade at 0.8690, as the US Dollar (USD) extends its rebound against safe-haven currencies. The rally marks a recovery of more than 3.0% from the lows of 0.8433 hit on August 5, when US recession fears led to a sell-off in markets at the start of last week.
A weaker-than-expected US Non-Farm Payrolls result in July triggered the sell-off, however, markets regained their composure on Thursday after strong US jobless claims data helped reassure investors that the US economy was not slipping into a recession. The US Dollar has since rebounded, particularly against the Swiss Franc (CHF), which benefited especially during the sell-off due to its safe haven status, attracting higher flows during times of conflict.
The depreciation of the Swiss Franc (CHF) will come as a relief to Swiss manufacturers who have been complaining that the appreciation of the Franc is hurting the competitiveness of their goods exports.
“The Swiss National Bank is called upon to act swiftly within the scope of its mandate,” Swissmem, an association of Swiss mechanical and electrical engineering manufacturers, said on Wednesday, according to Swissinfo.ch. “The SNB has the scope to prevent or cushion any future appreciation shock using the instruments it deems best,” it added.
Despite doing better than many other developed economies, Switzerland is struggling to gain traction amid weak export demand. Switzerland’s PMI has remained below 50, the dividing line between contraction and growth since the start of 2023. In fact, the Swiss manufacturing PMI stood at 43.5 in July 2024, down from 43.9 in the previous month and worse than market expectations of 43.8.
The USD/CHF could see further upside as the Swiss National Bank (SNB) is widely expected to cut interest rates by 0.25% to 1.25% at its September meeting. Such a cut would weaken the CHF as lower interest rates generally tend to dampen foreign capital flows. It would be the SNB’s third rate cut since it began easing monetary policy in March 2024. Rate cut expectations are reinforced by Switzerland’s annual inflation rate, which stands at 1.3% in July 2024, unchanged from the previous month and in line with market expectations.
Meanwhile, the US dollar is likely to remain range-bound against the Swiss franc on rising bets that the US Federal Reserve (Fed) could opt for a mega cut at its September meeting. Market odds stand at roughly 50/50 for a 0.25% cut in the federal funds rate to 5.25% and a 0.50% cut to 5.00%. These are much higher than earlier in the summer, when persistent inflation continued to suppress expectations of future rate cuts by the Fed.
US inflation data in the form of the US Producer Price Index (PPI) and the US Consumer Price Index (CPI) for July, due on Tuesday and Wednesday respectively, are likely to further color the US interest rate outlook and hence the trajectory of the US Dollar. Falling inflation is likely to weigh on USD/CHF while rising inflation could lead to an extension of the pair’s rally.
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.
