- USD/CHF gains traction to around 0.8840 in Friday’s Asian session, adding 0.26% on the day.
- The renewed US Dollar demand provides some support to the pair.
- The safe-haven flows could lift the Swiss Franc and cap the pair’s upside.
The USD/CHF pair drifts higher to near 0.8840 during the Asian trading hours on Friday, bolstered by the renewed US Dollar demand. Nonetheless, a global trade war and rising geopolitical tensions could boost the safe-haven currency like the Swiss Franc (CHF) and cap the pair’s upside.
On Thursday, the Labor Department reported that US producer prices unexpectedly unchanged on a monthly basis in February. However, tariffs are unlikely to keep prices down in the near future. “Looking ahead, the inflation landscape has become increasingly uncertain as various economic factors begin to take effect. One of the key contributors is the impact of tariffs, which have started to influence consumer prices,” said Sung Won Sohn chief economist at SS Economics. This, in turn, and provides some support to the Greenback against the CHF.
On the other hand, Trump’s tariffs may inflict irreparable harm to the US economy and might push the US economy into recession. Trump emphasized that he will be imposing tariffs on Europe, China and everyone else that trades with the US to bring manufacturing back home, and “Make America Great Again.” The global uncertainty, along with the escalating geopolitical tensions in the Middle East could the safe-haven demand, benefiting the CHF.
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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