USD/CHF dips to near 0.7950 as safe-haven demand supports Swiss Franc
|- USD/CHF falls as the Swiss franc gains support from safe-haven demand.
- President Trump said Iran sought negotiations after his military threats, but warned action may come before any meeting.
- Safe-haven demand rises as concerns grow over Fed independence.
USD/CHF loses ground for the second successive day, trading around 0.7970 during the Asian hours on Tuesday. The pair depreciates as the Swiss Franc (CHF) receives support from safe-haven demand amid geopolitical tensions and concerns over Federal Reserve (Fed) independence.
US President Donald Trump said on Sunday that Iran’s leadership had reached out to him seeking “to negotiate” following his threats of military action amid widespread anti-government protests in the Islamic Republic. Trump added, however, that “we may have to act before a meeting.”
Safe-haven demand increases as the Fed’s independence concerns rise after federal prosecutors threatened to indict Chair Jerome Powell over his congressional testimony on a building renovation, a move Powell has described as an attempt to undermine the central bank’s independence.
The downside of the USD/CHF pair could be restrained as the US Dollar (USD) holds gains ahead of the Consumer Price Index (CPI) data for December due later in the day, which could offer fresh clues on the Federal Reserve’s (Fed) policy path.
Markets are pricing in two Federal Reserve rate cuts this year, starting in June, though an upside inflation surprise could curb easing prospects. December’s Nonfarm Payrolls (NFP) missed expectations, reinforcing a more dovish Fed outlook. The CME Group's FedWatch tool suggests that the Fed funds futures price indicates a 95% probability that the US central bank will keep rates unchanged at its January 27–28 meeting.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action 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 Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every 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 is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally 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 CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the 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, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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