USD/CHF slips to near 0.7800 as safe-haven demand weighs on US Dollar

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USD/CHF depreciates after registering slight gains the previous day, trading around 0.7810 during Asian hours on Monday. The pair struggles as the US Dollar (USD) declines amid easing safe-haven demand, with traders assessing progress in US–Iran peace negotiations.

USD/CHF struggles as the US Dollar weakens on easing safe-haven demand, with traders monitoring progress in US–Iran talks.
Trump signaled Tehran’s latest peace proposal may fall short, expressing doubts over its acceptability.
Donald Trump said the US will escort neutral ships through the Strait of Hormuz starting on Monday.

Data released on Friday showed that Switzerland’s real retail sales rose by 0.5% YoY in March, falling short of market expectations for a 1% increase, after a downwardly revised 0.4% gain in the prior month. On a seasonally adjusted monthly basis, sales posted a modest 0.1% rise, following a revised 0.1% decline recorded in February.

Mediation efforts to end the conflict have continued as the war in Iran enters its third month. Donald Trump hinted that Tehran’s latest peace proposal may fall short of expectations, Bloomberg reported Sunday. Iran has proposed setting a one-month deadline for talks aimed at reopening the Strait of Hormuz and ending both the US naval blockade and the conflicts in Iran and Lebanon.

Another Bloomberg report indicated on Sunday that Donald Trump said the United States will begin guiding neutral ships trapped in the Persian Gulf out through the Strait of Hormuz starting Monday. The initiative is intended to help civilian vessels from non-aligned countries exit the contested waterway and resume normal operations.

However, an Iranian official warned that US interference in Hormuz will be considered a violation of the ceasefire, adding that the Strait of Hormuz and the Persian Gulf are not a place for rhetoric. Traders will closely monitor the developments surrounding the Middle East conflict and a continued blockade of the Strait of Hormuz.

Traders are likely awaiting the upcoming US employment report for April later this week. The US economy is expected to see 73K job additions in April, while the Unemployment Rate is projected to remain steady at 4.3% during the same period.

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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