- USD/CHF holds losses despite weakened safe-haven demand amid easing US-China tariff tensions.
- Traders adopt caution as the US CPI report may provide fresh impetus into the recent tariffs' impacts and inflationary trends.
- The recent Swiss CPI data has raised the odds of the SNB delivering a 25 basis point rate cut in June.
USD/CHF offers its recent gains registered in the previous session, trading around 0.8220 during the European hours on Wednesday. However, the pair may regain its ground as the Swiss Franc (CHF) may struggle due to weakened safe-haven demand, driven by the improved risk sentiment amid easing tariff tensions between the United States (US) and China.
US Commerce Secretary Howard Lutnick suggested, on Tuesday, potential resolutions with China and noted that both countries have reached a framework to implement the Geneva Consensus. While China’s Vice Commerce Minister Li Chenggang said that communication with the United States has been rational and candid, he will report on a framework to Chinese leaders. However, officials from both sides will seek approval from their leaders before implementation, according to Bloomberg.
US Treasury yields are holding steady as traders adopt caution ahead of the upcoming inflation data. The CPI report is expected to provide insight into the economic impact of recent tariffs and broader inflationary trends. 2-year and 10-year yields on US Treasury bonds are standing at 4.01% and 4.46%, respectively, at the time of writing.
In Switzerland, last week, Consumer Price Index (CPI) fell by 0.1% YoY in May, slipping below the Swiss National Bank’s (SNB) 0-2% target range and marking the first deflationary reading since March 2021. The softer inflation data has raised the odds of the Swiss National Bank (SNB) delivering a 25 basis point rate cut in the next meeting on June 19.
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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