Swiss Franc flattens as investors await Trump’s comments on meeting with China’s Xi

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The Swiss Franc (CHF) trades flat against its major currency peers, wobbling around 0.7820 against the US Dollar (USD) during the European trading session on Thursday.

Swiss Franc trades calmly ahead of US President Trump’s comments after meeting with Chinese leader Xi.
Chinese leader Xi warns of potential conflicts with the US if the Taiwan issue is mishandled.
The US Dollar remains broadly firm as dovish Fed bets for the year have eased.

The Swiss Franc (CHF) trades flat against its major currency peers, wobbling around 0.7820 against the US Dollar (USD) during the European trading session on Thursday. The USD/CHF pair consolidates as investors await comments from United States (US) President Donald Trump on the meeting with Chinese leader Xi Jinping.

So far, Chinese leader Xi has hailed the visit of US CEOs along with President Trump and has expressed optimism on the trade outlook between both nations. However, Xi has warned that the two nations come into conflict if the issue of Taiwan is “mishandled” by Washington.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near 98.50. The DXY is close to its weekly high of 98.60 posted on Wednesday.

The continued outperformance by the US Dollar is backed by increased expectations that the Federal Reserve (Fed) will either hold interest rates at their current levels or deliver at least one interest rate hike by the year-end.

According to the CME FedWatch tool, the odds of the Fed delivering at least one interest rate hike this year is 32.2%, which were almost nil a month ago. While the rest are favoring the Fed maintaining the status quo. The possibility of the Fed cutting interest rates this year is only 1%.

Fed dovish prospects have diminished after the release of the US Consumer Price Index (CPI) data on Tuesday, which showed that the headline inflation accelerated to 3.8% Year-on-Year (YoY) in April from the previous reading of 3.3%.

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.