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USD/CHF rallies to 0.7975 area as markets turn cautious

  • The US Dollar appreciates to 0.7975 but remains within the last six weeks' range, below 0.8000.
  • Political and fiscal uncertainty is providing a fresh impulse to the safe-haven Dollar this week.
  • In Switerlan, higher unemployment and low inflation figures are weighing on the CHF.

The US Dollar has accelerated its rebound from Monday’s lows at the 0.7940 area, reaching intra-day highs at 0.7975 so far. However, the pair remains trapped within the horizontal range of the last six weeks, below the 0.8000 psychological level.

The Greenback is outperforming its peers on Tuesday as markets turn cautious and speculative investors flock to the safety of the USD amid growing political and fiscal concerns in Japan and the Euro Area.

In France, Prime Minister Lecornu’s resignation revived concerns about the country’s boosting fiscal debt and undermined investors’ confidence in the Euro. In Japan, the “Takaishi Trade” has hammered the Yen amid expectations that the new prime minister will hamper the BoJ’s monetary tightening plans.

In Switzerland, recent data revealed that the Unemployment Rate ticked up to 3% from 2.9% in September, adding to evidence of the negative impact of Trump’s tariffs. Speculation about negative SNB interest rates has receded, but the low inflation levels remain a serious concern and a weight for further CHF recovery.

Swiss economy FAQs

Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.

Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.

As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.

Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.

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Author

Guillermo Alcala

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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