USD/CHF inches higher to near 0.7850 ahead of Swiss CPI data

USD/CHF gains ahead of Switzerland’s April Consumer Price Index data release scheduled for Tuesday.
Swiss SVME PMI rose to 54.5 in April, marking a second consecutive month of expansion.
The US Dollar strengthens on safe-haven demand after Iran’s drone and missile attacks on the UAE.

Akhtar Faruqui FXStreet

USD/CHF holds ground for the third consecutive day, trading around 0.7840 during the Asian hours on Tuesday. The Swiss Federal Statistical Office is set to release the April Consumer Price Index (CPI) data later in the day.

On Monday, the Swiss SVME - the Manufacturing Purchasing Managers' Index (PMI) climbed to 54.5 in April from 53.3 previously, beating expectations of 52.0. This marked a second straight month of expansion and the strongest reading since October 2022. Sentiment in Swiss manufacturing improved despite ongoing volatility in the Middle East.

The USD/CHF pair appreciates as the US Dollar (USD) advances on increased risk aversion following Iran’s attack on the United Arab Emirates (UAE). CNBC reported Monday that the UAE was targeted by Iranian drones and missiles, while the US said it destroyed Iranian boats in the Strait of Hormuz. US President Donald Trump warned that Iran would be “blown off the face of the earth” if it targets US ships protecting commercial vessels passing through the Strait.

Iran’s Foreign Minister Abbas Araghchi said the current situation in the Strait of Hormuz shows “clearly that there is no military solution to a political crisis.” “As talks are progressing with Pakistan’s gracious effort, the US should be cautious about being pulled back into a quagmire by ill-wishers. The same applies to the UAE,” Araghchi wrote in a post on X. “Project Freedom is Project Deadlock,” he added.

The Greenback strengthens as Treasury yields rise alongside expectations that the Federal Reserve (Fed) may need to lift interest rates to curb inflation. Minneapolis Fed President Neel Kashkari said Sunday that additional rate hikes cannot be ruled out, especially as inflation risks remain elevated due to higher energy prices linked to the Iran conflict.

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

Akhtar Faruqui

FXStreet

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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