- The USD/CHF collapses to around 0.8800 in the early European session on Tuesday.
- Concerns about a global commercial war increase safe refuge flows, supporting the Swiss Franco.
- The US IPC inflation data will be the highlight of Wednesday.
The USD/CHF pair attracts some sellers about 0.8800 during the early European session on Tuesday. The probable economic deceleration of the US and the continuous political uncertainty around the Trump administration’s commercial policy exert some sale pressure on the US dollar (USD). Investors will be attentive to the US Consumer Price Index (CPI) inflation report, which will be published on Wednesday.
The fears of a slowdown in the US growth driven by tariffs have shaken USD and USD actions. “The market is not sure if the fading of American exceptionalism will continue to harm the dollar or if the dollar will benefit from its safe refuge status,” said the strategist of the Singapore Sim Moh Siong bank. However, analysts believe that the prolonged drop in stock markets can lead to a safe refuge currency such as the Swiss Franco (CHF).
Risk risk investors have sought the Swiss Franco, leading to the maximum of several months against the dollar. In addition, the growing bets that the Federal Reserve (FED) will cut the additional interest rate could undermine the USD. The operators are valuing 75 basic cuts of cuts by the Fed this year, according to LSE data, with a completely valued rates cut for June.
The US CPI report will be at the Center for Care on Friday, which could offer some clues about the inflation trajectory in the US. It is expected that the general CPI inflation will cool in February after having accelerated in January.
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 Although the link is no longer in force, the fate of the Swiss Franco tends to be highly correlated with that of the euro due to the high dependence of the Swiss economy of neighboring Eurozone.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.
