USD/CHF falls toward 0.8450, continues to lose ground due to dovish Fed
- EUR/USD gains ground due to improved market sentient amid easing geopolitical tensions.
- Safe-haven flows, driven by rising tensions in the Middle East, are supporting the Swiss Franc.
- Swiss Non-Farm Payrolls rose by 1.3% YoY, reaching a record 5.499 million in the second quarter.
USD/CHF extends its losing streak for the third successive day, trading around 0.8470 during the Asian hours on Tuesday. The USD/CHF pair may decline further due to safe-haven flows toward the Swiss Franc (CHF). The risk aversion sentiment prevails due to rising geopolitical tensions in the Middle East.
Hamas has rejected new conditions proposed by Israel in ceasefire negotiations in Egypt, insisting that Israel adhere to the terms outlined by US President Joe Biden and the UN Security Council. However, US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, told Reuters early Tuesday that concerns about an imminent broader conflict in the region have diminished. An exchange of fire between Israel and Lebanon's Hezbollah did not escalate further.
The US Federal Reserve (Fed) Chairman Jerome Powell stated at the Jackson Hole Symposium on Friday, "The time has come for policy to adjust." However, Powell did not specify when rate cuts would begin or their potential size. According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting.
In the second quarter, Switzerland's Non-Farm Payrolls increased by 1.3% year-on-year, reaching a record 5.499 million, following a 1.8% rise in the previous quarter. Employment in the industrial sector rose by 0.7% to 1.134 million, with growth across all sectors. Meanwhile, employment in the services sector grew by 1.4% to 4.365 million.
The expansion of the labor market is less likely to influence market speculation regarding further interest rate cuts by the Swiss National Bank (SNB) in September. Furthermore, traders are expected to focus on the Swiss ZEW Survey – Expectations for August, scheduled for release on Wednesday.
Swiss Franc FAQs
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.
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.
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.
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.
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.