- The USD/CHF goes back to 0.8530 in the early European session on Thursday.
- The renewed commercial tensions between the US and China drive safe refuge flows, supporting the Swiss Franco.
- Investors are waiting for the inflation report of the US CPI of March, which will be published later on Thursday.
The USD/CHF pair loses land about 0.8530 during the early European session on Thursday. The US dollar (USD) weakens against the Swiss Franco (CHF) amid the growing commercial tension between the US and China, the two largest economies in the world.
President Donald Trump announced a 90 -day pause in many new tariffs on 10% commercial partners to allow commercial negotiations with those countries. However, commercial relations between the US and China have reached a level of crisis, with Trump increasing 125% tariffs on Chinese imports on Thursday, compared to 104% implemented only one day before.
The escalation of the commercial war between the two main economies of the world could slow their growth, or even push them to a recession. This, in turn, could damage the economies of other countries in the form of a slower global growth. The economic uncertainty and fears of a possible global recession increase the demand for safe refuge, benefiting the CHF.
The consumer price index (CPI) of the US will be monitored closely later on Thursday. The general CPI is expected to show an increase of 2.6% year -on -year in March, while the underlying CPI is estimated to register a 3.0% increase during the same informed period. If the report shows a hotter result than expected, this could raise the dollar in the short term.
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 Although the link is no longer in force, the fate of the Swiss Franco tends to be highly correlated with that of the euro due to the high dependence of the Swiss economy of neighboring Eurozone.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.
