USD/CHF gained for the second straight day, hovering around 0.8660 during Asian trading hours on Thursday. Strong labor and inflation data dampened expectations of aggressive easing by the Federal Reserve (Fed), leading to gains in the US dollar (USD). According to the CME FedWatch tool, there is currently a 92.1% chance of a rate cut of 25 basis points in November, while a larger cut of 50 basis points is not expected.
The US Dollar Index (DXY), which measures the value of the US dollar against its six major counterparts, continued its winning streak for the fifth consecutive session, boosted by better US Treasury yields after two days of decline ? The DXY is trading around 103.60, maintaining its position near two-month highs with 2-year and 10-year yields on US Treasury bonds at 3.94% and 4.03% respectively at the time of writing.
Swiss franc (CHF) losses may be limited due to safe haven flows amid rising tensions in the Middle East. On Wednesday, Israel stepped up its air strikes on Lebanon, including a strike that destroyed the municipal headquarters of a major city, resulting in the deaths of 16 people, including the mayor. According to Reuters, it is the biggest attack on an official government building in Lebanon since the start of the Israeli air campaign.
The Swiss inflation rate dropped to 0.8% in September, a three-year low and raising the prospect of another 25-basis-point rate cut by the Swiss National Bank (SNB) in December. In September, the SNB had already reduced its key policy rate by 25 basis points to 1%, representing the third consecutive cut and bringing borrowing costs to their lowest level since the beginning of 2023.
Traders will keep an eye on trade balance figures of Switzerland. The focus will shift to the US retail sales data, set to be released later in the North American session. Expectations are for monthly consumer spending in the United States to increase by 0.3% in September, up from 0.1% in the preceding reading.
Swiss franc faq
What are the key factors driving the Swiss franc?
The Swiss franchise (CHF) is the official currency of Switzerland. It is among the top ten most traded currencies worldwide, with volume exceeding the size of the Swiss economy. Its value is determined by broad market sentiment, the economic health of the country or actions taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss franc was tied to the euro (EUR). The peg was suddenly removed, resulting in a more than 20% increase in the value of the franc, sending the markets into turmoil. Even though the peg is no longer in place, the CHF’s fortunes are highly correlated with the euro due to the Swiss economy’s high dependence on the neighboring Eurozone.
Why is the Swiss Franc considered a safe currency?
The Swiss franc (CHF) is considered a safe-haven asset, or a currency that investors buy in times of market stress. This is due to Switzerland’s perceived position in the world: a stable economy, a strong export sector, large central bank reserves or a long-term political stance towards neutrality in global conflicts make the country’s currency a good choice for risk-averse investors. It is. During turbulent times the CHF value is likely to strengthen against other currencies that are considered riskier to invest in.
How do decisions of the Swiss National Bank affect the Swiss franc?
The Swiss National Bank (SNB) meets four times a year to decide on monetary policy – once each quarter, which is fewer than other major central banks. The Bank targets an annual inflation rate of less than 2%. When inflation is above target or is projected to be above target in the near future, the Bank will try to control price increases by increasing its policy rate. Higher interest rates are usually positive for the Swiss franc (CHF), as it leads to higher yields, making the country a more attractive destination for investors. Conversely, low interest rates weaken the CHF.
How do economic figures affect the value of the Swiss franc?
Macroeconomic data releases in Switzerland are important to assess the state of the economy and can impact the valuation of the Swiss franc (CHF). The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves has the potential to trigger fluctuations 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.
How does the Eurozone’s monetary policy affect the Swiss franc?
As a small and open economy, Switzerland is highly dependent on the health of neighboring eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, the Swiss franc (CHF). With such dependence, some models suggest that the correlation between the fate of the euro (EUR) and the CHF is at or near 90%.
