- USD/CHF is trading in negative territory for the second consecutive day near 0.8655 in the early European session on Thursday.
- Global political uncertainty and geopolitical risks boost the Swiss Franc, a traditional safe haven asset.
- Investors are awaiting US PCE inflation data for more clues on the Fed’s policy path.
The USD/CHF pair slides towards around 0.8655 during the early European session on Thursday. Persistent safe-haven flows amid uncertainty surrounding the US presidential election on November 5 and tensions in the Middle East continue to support the Swiss Franc (CHF).
US economic data continues to suggest that the US economy remains strong and supports prospects for less aggressive policy easing by the Federal Reserve (Fed). This, in turn, could limit the fall of the Dollar in the short term. Markets are pricing in a roughly 96% chance of a 25 basis point (bps) rate cut by the Fed, according to the CME’s FedWatch tool.
Traders will be keeping an eye on the US Personal Consumption Expenditure (PCE) Price Index, which is due out later on Thursday. On Friday, US employment data will be in the spotlight, including Non-Farm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings.
The race between Republican Donald Trump and Democrat Kamala Harris remains close ahead of the US presidential election on November 5. The ongoing geopolitical tensions in the Middle East and uncertainty related to the outcome of the US elections could boost the CHF and act as a headwind for the USD/CHF for the time being.
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 Although the peg is no longer in force, the fortunes of the Swiss franc tend to be highly correlated with that of the euro due to the Swiss economy’s high dependence on the neighboring eurozone.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.
