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USD/CHF weakens below 0.8500 amid bearish US Dollar

  • USD/CHF softens near 0.8465 in Friday’s early European session. 
  • Expectations of more rate cuts by the Fed continue to undermine the US Dollar. 
  • Switzerland's trade surplus came in at 4.578 billion Swiss Francs in August.

The USD/CHF pair trades on a softer note around 0.8465 on Friday during the early European session. The Greenback remains under some selling pressure after the Federal Reserve's (Fed) oversized interest rate cut on Wednesday. Traders will take more cues from the Fed’s Patrick Harker speech later on Friday. 

The Fed decided to cut its key lending rate by 50 basis points (bps) on Wednesday, the first reduction since the COVID-19 pandemic. Fed Chair Jerome Powell noted after the rate announcement that the US central bank "It is time to recalibrate our policy to something that is more appropriate given the progress on inflation, and on employment moving to a more sustainable level.” 

The Fed officials also penciled in an additional half-point of cuts before the end of this year. This, in turn, might exert some selling pressure on the US Dollar (USD).  

On the Swiss front, Switzerland's trade surplus came in at 4.578 billion Swiss Francs in August, according to the Federal Customs Office on Thursday. Additionally, the country’s Exports fell to 20.491 billion Swiss Francs in August and Imports declined to 15.912 billion Swiss Francs in the same reported period. 

Israeli warplanes and artillery attacked Hezbollah in southern Lebanon on Thursday. The action came after the militia's pagers and walkie-talkies exploded last week, killing scores and injuring thousands across Lebanon, according to CNBC. Any signs of escalating geopolitical risks in the region could boost the safe-haven flows, benefiting the Swiss Franc (CHF). 

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.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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