USD/CHF rises to near 0.7800, upside seems limited due to US shutdown uncertainty

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USD/CHF extends its recovery for the second successive session, trading around 0.7780 during the European hours on Tuesday. The pair appreciates as the US Dollar (USD) gains ground amid market caution ahead of the looming Federal Reserve (Fed) policy due on Wednesday.

USD/CHF rises as the US Dollar strengthens amid caution ahead of Wednesday’s Fed policy decision.
The USD may struggle as shutdown risks rise after Senate Democrats oppose a funding package.
Analysts warn sustained CHF strength could force the SNB to reconsider negative interest rates.

The upside of the USD/CHF pair could be restrained as US shutdown uncertainty weighs on the Greenback, while safe-haven demand supports the Swiss Franc (CHF). Senate Democratic leader Chuck Schumer has vowed to oppose a funding package that includes appropriations for the Department of Homeland Security, leaving Congress facing a January 30 deadline to avert a shutdown.

Traders may also turn cautious amid uncertainty surrounding the Federal Reserve (Fed). US President Donald Trump said last week he would soon announce his nominee to replace Fed Chair Jerome Powell, fueling speculation that the next chair could favor faster interest rate cuts.

The USD/CHF pair has slipped below 0.7800, triggering concerns in Zurich as the trade-weighted Swiss Franc (CHF) nears fresh record highs. Analysts warn that continued CHF strength could prompt the Swiss National Bank (SNB) to revisit negative interest rates. Key resistance for USD/CHF is seen at 0.7800–0.7810, according to ING’s Global Head of Markets and UK & CEE Research, Chris Turner.

The Swiss Franc may find support after Goldman Sachs said it remains the most effective global FX hedge against central bank subordination risks. The bank added that beyond its safe-haven status, the CHF is uniquely resilient to global inflation pressures.

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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