USD/CHF extends beyond 0.7950 amid generalised Swiss Franc weakness

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The US Dollar appreciates against the Swiss Franc for the third consecutive day, returning to levels beyond 0.7950 to regain most of the ground lost in the first half of the week.

The US Dollar extends gains against a weaker Swiss Franc on Friday and returns above 0.7950.
Strong US jobless claims and an unexpected rebound in a manufacturing index have given a fresh push to the USD.
The Swiss Franc remains on the back foot amid speculation that the SNB might cut rates into negative levels next week.

The US Dollar appreciates against the Swiss Franc for the third consecutive day, returning to levels beyond 0.7950 to regain most of the ground lost in the first half of the week.

The US Dollar bounced up from multi-year lows at 0.7830, after the Federal Reserve confirmed a widely expected rate cut. Fed Chairman Jerome Powell tempered some hopes of a steep monetary easing cycle ahead, warning about the looming upside risks to inflation stemming from higher tariffs and providing some impetus to the USD.

On Thursday, better-than-expected US weekly jobless claims figures and a sharp recovery of the Philadelphia Fed Manufacturing Index calmed fears of a sharp economic downturn and underpinned the US Dollar’s recovery.

On the other hand, the Swiss Franc remains offered across the board on Friday amid speculation that the Swiss National Bank might cut interest rates into negative territory next week. Recent data support that view, as both the CPI and the PPI fell into deflationary levels against expectations in August, retail consumption slowed down, and economic growth lost momentunm in the second quarter.

SNB FAQs

What is the Swiss National Bank?

The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.

How does the Swiss National Bank interest-rate policy affect the Swiss Franc?

The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive 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.

Does the Swiss National Bank intervene in the forex market?

Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.

When does the Swiss National Bank Governing Council decide on monetary policy?

The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.