USD/CHF steadies around 0.7650 as demand for US Dollar softens

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USD/CHF holds ground after two days of losses, trading around 0.7670 during the Asian hours on Tuesday.

USD/CHF moves little as the US Dollar weakens on softer foreign demand after China urged curbs on US Treasury holdings.
US one-year inflation expectations eased to 3.1% in January from 3.4%, the lowest in six months.
SNB Chairman Martin Schlegel flagged challenges from persistently low inflation, reaffirming commitment to the 0–2% price stability target.

USD/CHF holds ground after two days of losses, trading around 0.7670 during the Asian hours on Tuesday. The pair could weaken further as the US Dollar (USD) remains under pressure amid concerns that foreign demand for dollar-denominated assets may soften, after Chinese regulators urged financial institutions to limit US Treasury holdings to reduce concentration risks and exposure to uncertain US economic policies.

The Greenback remains under pressure as improving risk sentiment ahead of a heavy US data calendar this week dampens demand and influences expectations for the Federal Reserve’s policy path. Markets anticipate rates to be held in March, with the first cut likely in June and a potential follow-up in September.

US inflation expectations have eased, with median one-year-ahead expectations falling to 3.1% in January from 3.4% in December, the lowest in six months. Food price expectations were steady at 5.7%, while three- and five-year expectations remained unchanged at 3%.

Markets currently expect the Fed to keep interest rates unchanged in March, with potential rate cuts anticipated in June and possibly September. San Francisco Fed President Mary Daly said in a LinkedIn post on Friday that the economy may remain in a low-hiring, low-firing environment, though it could also shift toward a no-hiring, higher-firing phase.

Traders are awaiting Switzerland’s January inflation data, due on Friday, with analysts expecting annual inflation to remain subdued at 0.1%. Swiss National Bank (SNB) Chairman Martin Schlegel has recently highlighted the challenges posed by persistently low inflation and the policy rate at 0%, underscoring the central bank’s commitment to price stability within its 0–2% target range.

SNB Chairman Schlegel added that the SNB would closely monitor movements in the Swiss franc and stand ready to intervene in FX markets if necessary, rather than rushing into further rate cuts. He reiterated that the current policy stance remains appropriate, as inflation is expected to pick up in the coming months.

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.