USD/CHF rises to near 0.7950 ahead of UoM Consumer Sentiment Index

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USD/CHF recovers its recent losses registered in the previous session, trading around 0.7950 during the Asian hours on Friday. The pair appreciates as the US Dollar (USD) recovers losses ahead of the release of the University of Michigan Consumer Sentiment Index for December later in the day.

USD/CHF rises as the US Dollar recovers ahead of the University of Michigan Consumer Sentiment Index release on Friday.
The Greenback may face pressure as softer November CPI boosts expectations of US Federal Reserve rate cuts.
Traders seek SNB rate clarity, with a return to negative rates seen as unlikely due to risks to savers.

The upside of the US Dollar could be restrained amid rising expectations of US Federal Reserve (Fed) rate cuts following the unexpectedly cooled US Consumer Price Index (CPI) inflation in November. US Consumer Price Index (CPI) eased to 2.7% in November. This reading came in below the market consensus of 3.1%. Meanwhile, the US core CPI, which excludes volatile food and energy prices, rose by 2.6%, missing the expectation of 3.0%. This figure marks the slowest pace since 2021.

On Thursday, US President Donald ‌Trump noted that the next chairman of the ⁠‌Federal Reserve (Fed) will be ‍someone who believes in lower interest rates "by ‌a lot." Trump further noted that he will ⁠soon announce a successor to current Fed Chair ‍Jerome ⁠Powell.

Switzerland’s Federal Customs Administration reported on Thursday that the trade surplus widened to CHF 3,841 million in November, marking the largest surplus since August. Exports rose 1.6% MoM to CHF 23,478 million, while imports declined 0.8% MoM to CHF 19,637 million, largely due to weaker chemical and pharmaceutical purchases.

Meanwhile, traders are seeking clarity on the Swiss National Bank’s (SNB) rate outlook, with the central bank seen as unlikely to return to negative interest rates given the potential adverse effects on savers and pension funds.

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.