USD/CHF gains traction above 0.8050 amid US Dollar strength

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The USD/CHF pair edges higher to near 0.8075 during the early European session on Friday, bolstered by renewed US Dollar (USD) demand. The preliminary reading of the U-Mich Consumer Sentiment survey will be published later on Friday.

USD/CHF trades in positive territory around 0.8075 in Friday’s early European session.
Fed officials backed Powell, saying December rate cut ‘not foregone conclusion.’
The SNB’s remarks reinforce confidence in inflation resilience.

US officials have expressed conflicting views over the outlook for monetary policy. Chicago Fed President Austan Goolsbee on Thursday exhibited a clear lack of urgency about cutting rates further. Meanwhile, Cleveland Fed President Beth Hammack was even more blunt in opposition to another near-term rate cut, arguing that inflation is a greater concern than labor market weakening and that policy should remain “at a mildly restrictive setting to strike the right balance between our goals.”

Traders will keep an eye on the Fedspeak later on Friday. The Fed’s John Williams, Philip Jefferson and Stephen Miran are scheduled to speak. Comments from Fed officials could support the Greenback against the Swiss Franc in the near term.

The Swiss National Bank (SNB) remains optimistic about inflation forecasts. Chair Martin Schlegel said this week that prices should increase somewhat in the next quarters, but interest rates are projected to stay steady for an extended period. These remarks, along with a stable labor market, as Switzerland's Unemployment Rate remained unchanged at 3.0% in October, strengthen the CHF's reputation as a safe-haven currency in the face of global uncertainty.

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.