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Swiss Franc slips to seven-month lows ahead of ZEW Survey Expectations

  • USD/CHF reached a seven-month high of 0.8107 on Wednesday.
  • The US Dollar rises due to robust domestic economic data alongside a complex, mixed geopolitical landscape.
  • The SNB raised its inflation forecast and reaffirmed its readiness to intervene in forex markets to curb Franc strength.

USD/CHF extends its gains for the sixth successive day, reaching a seven-month high of 0.8107 during the Asian hours on Wednesday. The pair rises as the Greenback strengthens on the complex Middle East situation. Traders will likely observe the Swiss ZEW Survey – Expectations for June and the Q2 SNB Quarterly Bulletin due later in the day.

US President Donald Trump stated that Iran had "fully and completely" agreed to open its facilities to nuclear inspections, while Iranian Foreign Minister Abbas Araghchi quickly tempered expectations by clarifying that substantive nuclear negotiations have not actually begun.

Additionally, Iran’s chief negotiator issued a stern warning that the strategic Strait of Hormuz will never return to its pre-war status and will remain firmly under Iranian oversight. Meanwhile, diplomatic efforts showed signs of progress elsewhere as Washington hosted a fresh round of talks between Israel and Lebanon, aimed at securing a ceasefire with Iran-backed Hezbollah.

June’s flash estimate for the US S&P Global Composite Purchasing Managers’ Index (PMI) climbed to 52.2, comfortably beating May’s reading of 51.5 and signaling healthy business expansion. The US manufacturing sector showed remarkable resilience, with output jumping to 55.7 from the previous month's 55.1, easily outperforming forecasts of 54.8. Simultaneously, the Services PMI printed at 51.3, ticking up from May's 50.7 and clearing the consensus estimate of 51.0, proving that demand in the broader service economy remains incredibly sticky.

The CME FedWatch tool indicates that the markets adjusted expectations for a more hawkish stance from the Federal Reserve (Fed). Traders are now pricing in a nearly 86.1% chance of a Fed hike in December, up from 61% before last week’s FOMC meeting.

The Swiss National Bank (SNB) kept its policy rate at 0% for the fourth straight meeting in June, maintaining its current stance, which continues to support both price stability and economic growth. However, the central bank raised its inflation forecast and reaffirmed its readiness to intervene in the foreign exchange markets to curb the Franc’s strength.

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.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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