USD/CHF languishes near one-month low; seems vulnerable below 0.8000 mark

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The USD/CHF pair seesaws between tepid gains/minor losses through the Asian session on Monday and is currently trading around the 0.7975 region, nearly unchanged for the day.

USD/CHF lacks any firm intraday directional bias and oscillates in a range on Monday.
A positive risk tone undermines the CHF and lends support amid a modest USD uptick.
Fed rate cut bets should keep a lid on any meaningful USD gains and the currency pair.

The USD/CHF pair seesaws between tepid gains/minor losses through the Asian session on Monday and is currently trading around the 0.7975 region, nearly unchanged for the day. Spot prices, however, remain close to the lowest level since July 28, touched on Friday, and seem vulnerable to sliding further.

The US Dollar (USD) attracts some buyers at the start of a new week and recovers a part of Friday's weaker-than-expected US Nonfarm Payrolls (NFP) report-inspired losses to its lowest level in more than one month. Furthermore, a generally positive risk tone is seen undermining demand for the safe-haven Swiss Franc (CHF) and acting as a tailwind for the USD/CHF pair.

The upside for the USD, however, remains limited in the wake of rising bets for a more aggressive policy easing by the Federal Reserve (Fed). In fact, traders have started pricing in the possibility of a jumbo Fed rate cut in September and the possibility of three rate cuts by the year-end. This should keep a lid on any meaningful USD appreciation and cap the USD/CHF pair.

Even from a technical perspective, Friday's close below the 0.8000 psychological mark, for the first time since July 25, suggests that the path of least resistance for spot prices is to the downside. Hence, any attempted recovery might be seen as a selling opportunity and runs the risk of fizzling out rather quickly in the absence of any market-moving economic data from the US.

The market focus now shifts to the release of the latest US inflation figures – the Producer Price Index (PPI) and the Consumer Price Index (CPI) on Wednesday and Thursday, respectively. The crucial data will determine the next leg of a directional move for the Greenback and provide some meaningful impetus to the USD/CHF pair during the latter part of the week.

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.