USD/CHF climbs further beyond mid-0.7800s as Hormuz risks continue to underpin USD

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The USD/CHF pair turns positive for the third straight day following an intraday dip to the 0.7830 region and climbs to a fresh one-and-a-half-week high during the Asian session on Thursday.

USD/CHF attracts buyers for the third consecutive day amid a broadly firmer US Dollar.
The Hormuz standoff and less dovish Fed expectations continue to underpin the buck.
Bulls now await sustained strength above the 100-day SMA before placing fresh bets.

The USD/CHF pair turns positive for the third straight day following an intraday dip to the 0.7830 region and climbs to a fresh one-and-a-half-week high during the Asian session on Thursday. Spot prices climb beyond mid-0.7800s and look to build on this week's recovery move from the lowest level since March 11 amid a broadly firmer US Dollar (USD).

The initial optimism over a temporary extension of the US-Iran ceasefire fades rather quickly amid the lack of progress in peace talks and the instability in the Strait of Hormuz. In fact, US President Donald Trump said on Tuesday that the US Navy blockade of Iranian ports will continue, while Iran has set the complete removal of the US naval blockade as a precondition for resuming negotiations. This keeps geopolitical risks in play, assisting the USD in prolonging its uptrend for the third straight day and acting as a tailwind for the USD/CHF pair.

Meanwhile, the Wall Street Journal reported on Wednesday that Iran fired on three ships in the Strait of Hormuz and escorted two of them to Iranian waters. This comes on top of continued disruptions to energy supplies through the strategic waterway, which remains supportive of elevated Crude Oil prices, fueling inflationary concerns. Furthermore, a resilient US economy increases the threshold for the US Federal Reserve (Fed) to cut interest rates. This further supports the USD and validates the positive outlook for the USD/CHF pair.

Despite the aforementioned supportive fundamental backdrop, bulls might still await a sustained move beyond the 100-day Simple Moving Average (SMA) before positioning for further gains. Traders now look to the US economic docket – featuring the release of usual Weekly Initial Jobless Claims and the flash PMIs – for some impetus later during the North American session. The focus, however, remains on fresh developments surrounding the US-Iran saga, which might continue to infuse volatility around the USD/CHF pair.

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.