USD/CHF rebounds above 0.7650 as traders brace for Trump's Fed nomination

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The USD/CHF pair rebounds to near 0.7685 during the early European session on Friday, bolstered by renewed US Dollar (USD) demand. US President Donald Trump and Senate Democrats struck a deal to avoid a US government shutdown, supporting the Greenback against the Swiss Franc (CHF).

USD/CHF gains momentum to around 0.7685 in Friday’s early European session.
Democrats and the White House struck a deal to avert a partial government shutdown.
Trump says the nominee for the next Fed Chair will be unveiled on Friday.

The US Senate could vote as soon as Thursday night to approve a government funding package after Democrats reached a deal with US President Donald Trump to strip out the full-year spending bill for the Department of Homeland Security (DHS). The USD edges higher following this headline. However, it is unclear how quickly the House can and will process those funding bills after the Senate passes them. The shutdown deadline is midnight on Friday.

Traders will closely monitor the developments surrounding Trump’s Fed Chair pick on Friday. The US president said late Thursday that he will announce his choice to replace Jerome Powell as the chair of the Federal Reserve (Fed) on Friday morning. Former Fed Governor Kevin Warsh is increasingly seen as the frontrunner following a reported meeting with Trump at the White House.

On the other hand, renewed concerns over political uncertainty in the United States (US) or rising geopolitical tensions could boost safe-haven currencies such as the Swiss Franc and create a headwind for the pair.

The Swiss National Bank (SNB) Chairman Martin Schlegel notes that if the CHF continues to appreciate, it could increase pressure on the central bank. Analysts believe the SNB is likely to adopt a cautious approach and wait for new inflation projections before considering any policy adjustment, while ruling out a return to negative rates for now.

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.

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