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Swiss Franc extends its gains as the US Dollar faints amid Iran peace hopes

  • USD/CHF depreciates for the fourth consecutive day and approaches 0.7800.
  • Comments about progress in the US-Iran negotiations are boosting a moderate risk appetite.
  • Rising hopes of Fed rate hikes are likely to limit the US Dollar's losses.

The Swiss Franc (CHF) accelerates its recovery against the US Dollar (USD) on Monday, with the USD/CHF pair reaching 11-day lows below 0.7820 at the moment of trading, down from highs past 0.7900 last week. Growing hopes of a peace deal between the US and Iran and the reopening of the Strait of Hormuz are fuelling a moderate risk appetite and hurting the safe-haven US Dollar, with most Western markets closed on bank holidays.

Comments by US President Donald Trump this weekend, suggesting that Washington and Tehran are drawing closer to a peace agreement, have brightened investors' mood. Trump, nevertheless, has conveyed mixed messages, warning that the US will maintain the blockade on the Strait of Hormuz, which is likely to hinder an agreement, and adding that he is not in a rush to get a deal.

Tehran is reluctant to reopen Hormuz

On Monday, a spokesperson from the Iranian Foreign Ministry confirmed that Tehran is negotiating the end of the war and that it “is not currently discussing” nuclear issues,” which is one of the main friction points in the process. The same source, however, also affirmed that “management of the strait (of Hormuz) belongs to the coastal countries.”

The calendar is thin on Monday with US markets closed for Memorial Day. The highlight of the week will be the preliminary US Personal Consumption Expenditures (PCE) Price Index data from April, the inflation gauge of choice for the Federal Reserve (Fed).

Rising inflationary pressures, coupled with fairly strong US macroeconomic figures seen recently, namely the stabilising labour market data, have prompted investors to ramp up bets that the Fed will be forced to hike interest rates later this year. Markets are now pricing a more than 50% chance of a rate hike in 2026, from the one or two further rate cuts expected before the US attack on Iran, on February 28. This is likely to act as a headwind for the US Dollar.

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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Guillermo Alcala

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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