Swiss Franc strengthens to near 0.8100 as traders await Swiss CPI, US NFP releases

USD/CHF softens to near 0.8085 in Thursday’s early European session.
Fed’s Warsh said overall inflation remains too high but noted that inflation risks have diminished since May.
Traders await the Swiss CPI inflation and US employment reports on Thursday for fresh impetus.

Lallalit Srijandorn FXStreet

The USD/CHF pair declines to around 0.8085 during the early European trading hours on Thursday. The US Dollar (USD) weakens against the Swiss Franc (CHF) on the weaker-than-expected ADP June employment report. Traders will take more cues from the Swiss Consumer Price Index (CPI) inflation data and the highly anticipated Nonfarm Payrolls (NFP) data, which are due later on Thursday.

Federal Reserve (Fed) Chairman Kevin Warsh said on Wednesday that inflation expectations and price risks have eased in recent weeks, while the ADP National Employment Report showed that private employment rose but less than expected. This could reinforce expectations that policymakers are in no rush to raise interest rates.

The US jobs report for June will take center stage later in the day. Economists expect the US economy to add 110,000 jobs in June, while the Unemployment Rate is projected to hold steady 4.3% during the same period. Any signs of weakening in the US labor market could weigh on the Greenback against the CHF.

That being said, "If the payrolls data exceed market expectations, the dollar could accelerate higher on a rebound," said Mitsubishi UFJ Bank senior analyst Akihiko Yokoo in a note.

On the Swiss front, the headline CPI is projected to show an increase of 0.5% YoY in June, compared to 0.6% in May. Analysts believe that a downside surprise matching Eurozone trends could weigh on the CHF as traders solidify expectations that interest rates will stay low for an extended period.

According to the Swiss National Bank (SNB) Financial Stability Report released on Thursday, the economic environment and conditions on the financial markets remain challenging for the Swiss financial sector. However, the central bank noted that the Swiss banking sector is well positioned to withstand the current challenging macroeconomic and financial environment.

Swiss Franc FAQs

What key factors drive the Swiss Franc?

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.

Why is the Swiss Franc considered a safe-haven currency?

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.

How do decisions of the Swiss National Bank impact the Swiss Franc?

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.

How does economic data influence the value of the Swiss Franc?

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.

How does the Eurozone monetary policy affect the Swiss Franc?

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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