USD/CHF trades firmly near 0.8050 as risk-off mood improves US Dollar’s appeal

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The USD/CHF pair extends its winning streak for the third trading day on Wednesday. The Swiss Franc pair rises to near 0.8050 as the safe-haven demand of the US Dollar (USD) has increased, following a significant surge in long-dated bond yields across the globe.

USD/CHF demonstrates strength around 0.8050 amid sour market sentiment.
Soaring long-term bond yields across the globe have increased safe-haven demand for the US Dollar.
Investors await the US JOLTS Job Openings and Swiss inflation data.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto Tuesday’s gains around 98.50.

Surging long-term bond yields have dampened demand for risky assets. Dow Jones futures extend losses in the overnight session, exhibiting a decline in investors’ risk appetite.

Meanwhile, investors await the US JOLTS Job Openings data for July, which will be published at 14:00 GMT. US employers are expected to have posted fresh 7.4 million jobs, almost in line with the prior reading of 7.44 million.

This week, the major trigger for the US Dollar will be Nonfarm Payrolls (NFP) data for August, which will be released on Friday. Investors will closely monitor the employment data to get cues about the current status of the labor market. Lately, Federal Reserve (Fed) officials have argued in favor of interest rate cuts, citing downside employment risks.

In the Swiss region, investors await Consumer Price Index (CPI) data for August, which is scheduled for Thursday. The CPI report is expected to show that inflation grew steadily by 0.2% on year. On a monthly basis, the inflation growth is anticipated to have remained flat again. Swiss National Bank (SNB) officials could discuss in the policy meeting later this month on pushing interest rates into the negative territory to prompt inflation growth.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.