- USD/CHF faces pressure as the US Dollar weakened, dragged down by a decline in US yields.
- US Treasury yields may recover on improving global trade sentiment and fading odds of imminent Fed rate cuts.
- SNB Chair Martin Schlegel signaled the central bank remains open to further rate cuts if economic conditions warrant it.
USD/CHF edged lower during Asian trading on Friday, hovering around 0.8310 after posting gains in the previous two sessions. The pair came under pressure as the US Dollar (USD) softened, weighed down as US Treasury yields declined. At the time of writing, the 2-year and 10-year yields were at 4.36% and 3.86%, respectively.
However, US yields had earlier found support from improving global trade sentiment and reduced expectations for near-term Federal Reserve (Fed) rate cuts. Market confidence was buoyed after President Donald Trump announced a preliminary trade deal with the UK, marking the first agreement since the US imposed broad tariffs last month.
Focus now shifts to preliminary US-China trade discussions scheduled for this weekend in Switzerland. However, both sides have played down the likelihood of any significant breakthrough. Trump has maintained a firm stance on China, underscored by the appointment of a new envoy to Beijing. Although talks regarding potential tariff exemptions are ongoing, Trump emphasized that the US is “not looking for so many exemptions.”
Meanwhile, Chinese Vice Foreign Minister Hua Chunying reaffirmed China's resilience, stating the country has "full confidence" in managing trade tensions with the US and the capability to weather ongoing challenges.
On the Swiss front, expectations for further interest rate cuts by the Swiss National Bank (SNB) intensified after Chair Martin Schlegel suggested the central bank is ready to cut rates further if needed. Schlegel also hinted at the potential return of zero or negative rates amid continued economic uncertainty.
Swiss inflation data added to the dovish outlook, with April’s Consumer Price Index showing zero year-on-year growth and core inflation declining sharply, heightening speculation of a rate cut at the SNB’s June 19 meeting.
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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