USD/CHF recovers few pips from weekly low, remains below mid-0.7900s

USD/CHF attracts some dip-buying on Thursday amid a combination of supporting factors.
A positive risk tone undermines the CHF and supports the pair amid a modest USD uptick.
Trade jitters and Fed rate cut bets might hold back bulls from placing aggressive bets.

Haresh Menghani FXStreet

The USD/CHF pair rebounds a few pips from a fresh weekly low touched during the Asian session on Thursday and for now, seems to have stalled this week's slide from the vicinity of the 0.8000 psychological mark. Spot prices, however, lack bullish conviction and currently trade around the 0.7940 region, unchanged for the day amid mixed cues.

Asian stocks tracked the overnight move up in the US equity markets, which, in turn, undermines demand for the safe-haven Swiss Franc (CHF). The US Dollar (USD), on the other hand, draws some support from diminishing odds for a rate cut by the Federal Reserve (Fed) in July and turns out to be another factor acting as a tailwind for the USD/CHF pair.

However, Minutes from the June 17-18 FOMC meeting released on Wednesday left the door open for more interest rate cuts by the end of this year. This might hold back the USD bulls from placing aggressive bets. Moreover, trade-related uncertainties could keep a lid on any optimism in the markets and contribute to capping the upside for the USD/CHF pair.

In fact, US President Donald Trump issued tariff notices to eight minor trading partners on Wednesday and said that there will be no extensions for the countries that receive letters. Furthermore, Trump stressed that any retaliatory levies will be added to the existing US tariffs and also announced that the 50% tariff on copper imports will take effect on August 1.

This, in turn, makes it prudent to wait for strong follow-through buying before positioning for the resumption of the USD/CHF pair's recent bounce from the 0.7870 region, or the lowest level since September 2011 touched last week. Traders now look to the release of the US Weekly Initial Jobless Claims and speeches from influential FOMC members for a fresh impetus.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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