- USD/CHF rises as the Swiss Franc weakens after the SNB’s expected 25 basis point rate cut on Thursday.
- The SNB avoided signaling a clear policy path, emphasizing the need for lower borrowing costs to maintain appropriate monetary conditions.
- The US Dollar stays strong amid growing risk aversion driven by escalating global trade tensions related to US tariff policies.
USD/CHF continues its upward momentum for the third consecutive session, trading around 0.8840 during Asian hours on Friday. The pair gains as the Swiss Franc (CHF) struggles following the Swiss National Bank’s (SNB) widely expected decision to cut its interest rate by 25 basis points (bps) to 0.25% from 0.50% after its March quarter monetary policy review.
Despite the rate cut, the SNB refrained from committing to a specific policy direction, stating that lower borrowing costs are necessary to align monetary conditions with subdued inflationary pressures.
However, the downside for the USD/CHF pair may be limited, as the Swiss Franc finds support from safe-haven demand amid rising geopolitical risks, stable Swiss inflation, and uncertainty surrounding US economic policy.
Additionally, the US Dollar (USD) could remain firm as risk aversion rises due to escalating global trade tensions linked to US tariff policies. Federal Reserve (Fed) Chair Jerome Powell downplayed the inflationary effects of tariffs, calling them temporary but acknowledged the broader economic uncertainty they introduce.
On the economic data front, US Initial Jobless Claims rose to 223K for the week ending March 15, slightly below the 224K estimate but surpassing the previous week’s revised figure of 221K. Meanwhile, the Philadelphia Fed Manufacturing Survey for March fell to 12.5 from February’s 18.1, marking a second consecutive monthly decline but remaining above the expected 8.5.
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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