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USD/CHF hovers around 0.8050 as traders adopt caution ahead of Fed Beige Book

  • USD/CHF struggles ahead of US JOLTS Job Openings and the Fed Beige Book due on Wednesday.
  • The CME FedWatch tool indicates that more than 89% of a 25-basis-point Fed rate cut is expected in September.
  • Thursday’s Swiss CPI data will likely provide insights into the SNB's policy outlook for September.

USD/CHF struggles after two days of gains, trading around 0.8040 during the European hours on Wednesday. The pair receives downward pressure as the US Dollar (USD) faces challenges amid rising odds of the US Federal Reserve (Fed) delivering interest rate cut in September. The CME FedWatch tool indicates pricing in more than 89% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from an 86% chance a day ago.

However, the USD/CHF pair gained ground as rising yields make US assets more attractive to global investors, hence capital inflows increase demand for US Dollar (USD). The two-year and 10-year yields on US Treasury bonds standing at 3.66% and 4.29%, respectively, at the time of writing.

The US JOLTS Job Openings and the US Federal Reserve (Fed) Beige Book will be eyed later in the North American session. Attention will shift toward upcoming data later in the week that could shape the US Federal Reserve’s (Fed) policy decision in September. Key reports include ADP Employment Change, Average Hourly Earnings, and Nonfarm Payrolls for August.

The USD/CHF pair drew support as the Swiss Franc (CHF) struggled as the Swiss National Bank (SNB) officials may consider pushing interest rates into negative territory at this month’s policy meeting, as July inflation stayed well below the central bank’s 2% target. Traders will likely gain fresh impetus from Swiss Consumer Price Index (CPI) data for August due on Thursday, with expectations for a steady 0.2% annual increase and flat growth on a monthly basis.

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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