USD/CHF gathers strength to near 0.7700 ahead of Swiss, US CPI inflation releases

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USD/CHF strengthens around 0.7700 in Friday’s early European session.
US job growth unexpectedly accelerated in January, tempering bets for additional Fed rate cuts.
Traders will take more cues from the Swiss and US CPI inflation data on Friday.

The USD/CHF pair trades in positive territory near 0.7700 during the early European session on Friday. Growing expectations that the US Federal Reserve (Fed) will not cut interest rates in the near term provide some support to the Greenback against the Swiss Franc (CHF). Traders brace for the Consumer Price Index (CPI) inflation reports from Switzerland and the United States (US) later on Friday.

US Nonfarm Payrolls (NFP) climbed by 130,000 in January, above the estimate of 70,000, according to the Bureau of Labor Statistics on Wednesday. The Unemployment Rate edges lower to 4.3% during the same period. The upbeat jobs report provides some relief to concerns about the state of the US labor market and reduces the chances that the US central bank will cut interest rates again by midyear.

The CME FedWatch tool showed markets currently priced in nearly a 92% odds that the Fed will hold rates steady at its next meeting, although the chance of a rate cut at its June meeting is now at nearly 50%.

The Swiss inflation data will be in the spotlight on Friday. The CPI is expected to show an increase of 0.1% YoY in January. If the report shows a hotter than estimated outcome, this could boost the CHF against the US Dollar (USD) in the near term.

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.