USD/CHF rises to near 0.7900 as safe-haven demand lifts US Dollar

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USD/CHF gains ground after two days of losses, trading around 0.7890 during the European hours on Tuesday. The pair appreciates as the US Dollar (USD) receives support from safe-haven demand amid stalled US-Iran peace talks.

USD/CHF appreciates on safe-haven demand as stalled US–Iran peace talks dampen risk sentiment.
President Trump appears unlikely to accept Iran’s offer to reopen the Strait of Hormuz.
SNB’s Chairman Schlegel reaffirmed the SNB's readiness to buy foreign currencies to weaken the CHF and ensure price stability.

US President Donald Trump seems unlikely to accept Iran's offer to end its closure of the Strait of Hormuz. Moreover, US Secretary of State Marco Rubio appeared to rule out any deal that excludes Iran’s nuclear program.

Iran offered to open the Hormuz if the US lifts its blockade on the country and ends the war in a proposal that would postpone discussions on the Islamic Republic’s nuclear program, per Bloomberg.

The Greenback also gained on rising expectations of the prolonged Federal Reserve (Fed) higher rates and even further tightening. The US central bank is widely expected to hold rates steady at its April meeting, likely maintaining the federal funds target range at 3.50%–3.75%, marking a third straight hold. Fed nominee Kevin Warsh has stressed policy independence, even as markets price in a more aggressive rate-cutting path ahead.

Swiss National Bank (SNB) Chairman Martin Schlegel reiterated at the April meeting that the bank stands highly ready to intervene in FX markets by purchasing foreign currencies to weaken the Swiss Franc (CHF) and safeguard price stability. Schlegel also noted that the current policy stance remains expansionary to support economic activity amid “profound uncertainty.”

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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