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USD/CHF gains ground above 0.8950 as traders brace for US PCE data

  • USD/CHF trades with mild gains near 0.8980 in Friday’s early European session.
  • The Fed’s hawkish approach and encouraging US economic data support the USD. 
  • The safe-haven flows might boost the CHF and cap the upside for the pair. 

The USD/CHF pair holds positive ground around 0.8980 during the early European session on Friday. A hawkish rate cut from the US Federal Reserve (Fed) and stronger US economic data boost the Greenback against the Swiss Franc (CHF). The attention will shift to the release of the US Personal Consumption Expenditures (PCE) Price Index for November, which is due later on Friday. 

The US central bank cut the interest rate by 25 basis points (bps) as widely expected. Nonetheless, the Fed signaled a more hawkish stance on its easing cycle next year. The Fed's dot plot, a chart that projects the future path of interest rates, indicated a half-percentage point rate cut in 2025, compared with a full percentage cut projected in September. According to the Summary of Economic Projections (SEP), or “dot plot”," the Fed intends to reduce the number of interest rate cuts next year from four to just two quarter-percent cuts.

The upbeat US economic data released on Thursday has contributed to the USD’s upside. The third estimate reading released by the Bureau of Economic Analysis showed that the US Gross Domestic Product (GDP) grew at a 3.1% annualized rate in the third quarter (GDP), compared to a previous projection of 2.8%. Additionally, the US weekly Initial Jobless Claims declined to 220K in the week ending December 14, compared to the previous week's print of 242K, and came in below the market consensus of 230,000.

On the Swiss front, the Swiss National Bank (SNB) is expected to deliver a further interest rate cut in March 2025 to 0.25% following last week’s 50 bps reduction in the key interest rate. "The SNB softened its forward guidance for possible further cuts. But with the latest move, the SNB likely cemented the market expectations for lower rates," noted Alexander Koch, head of macro and fixed income research at Raiffeisen.

Meanwhile, the ongoing geopolitical tensions in the Middle East and the conflict between Russia and Ukraine could boost the safe haven flows, benefiting the CHF. Israel's military carried out devastating attacks on Houthi targets in Yemen early Thursday, just hours after the Iran-backed terrorist group's latest attack on Israel. Israel's military claimed that the strikes were in retaliation for Houthi missile and drone attacks on Israel over the past year, most of which were intercepted, per CNN. 

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

Lallalit Srijandorn

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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