USD/CHF nears 0.7950 amid broad-based US Dollar’s strength

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The US Dollar accelerated its recovery against the Swiss Franc on Wednesday, reaching session lows above 0.7940.

The US Dollar accelerates its recovery amid a risk-off mood and nears 0.7950.
Fed Chair Powell warned that further interest rate cuts are not guaranteed.
In Switzerland, all eyes are on the SNB's monetary policy decision, due on Thursday,

The US Dollar accelerated its recovery against the Swiss Franc on Wednesday, reaching session lows above 0.7940. A moderate risk-off market is boosting the US Dollar across the board, while the CHF remains on its back foot ahead of Thursday’s SNB monetary policy decision.

US data released on Tuesday revealed that business activity in both the services and manufacturing sectors slowed down, in line with market expectations, although it remains at levels consistent with moderate growth.

Later on, Fed Chair Jerome Powell reiterated the challenging situation that the inflationary risks combined with a softening labor market pose for the bank's monetary policy setting. Powell warned against taking further monetary easing for granted, but that did not alter investors’ expectations that the bank will cut rates in November, and probably also in December.

In Switzerland, the ZEW Survey, released on Wednesday ,has shown an unexpected improvement of business conditions in September, with its Expectations Index rising to -46.4 from -53.8 in August.

Investors’ focus, however, is on the SNB’s monetary policy decision due on Thursday. The bank is expected to keep rates on hold at the current 0% level, but the weak macroeconomic data and the uncertainty around the trade relations with the US might force the bank to signal further cuts in the near future. The risk for the Swiss Franc is skewed to the downside.

SNB FAQs

What is the Swiss National Bank?

The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.

How does the Swiss National Bank interest-rate policy affect the Swiss Franc?

The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive 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.

Does the Swiss National Bank intervene in the forex market?

Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.

When does the Swiss National Bank Governing Council decide on monetary policy?

The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.