USD/CHF weakens below 0.9050 ahead of Swiss CPI data

July 4, 2024 12:31 am

  • USD/CHF trades with a mild bearish bias around 0.9015 in  Thursday’s Asian session. 
  • Fed officials maintain a cautious stance and refrain from committing to interest rate cuts. 
  • The Swiss CPI is estimated to show an increase of 1.4% in June.

The USD/CHF pair trades with mild losses near 0.9015 during the early Asian trading hours on Thursday. The softer US Dollar (USD) and declining US bond yields weigh on the pair. The US markets will be closed on Thursday due to Independence Day. On Friday, the attention will shift to the US employment data for June, including Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings. 

The weaker-than-expected US Services Purchasing Managers Index (PMI) for June exerts some selling pressure on the Greenback. The US ISM Services PMI declined to 48.8 in June from 53.8 in May, lower than the market consensus of 52.5 by a wide margin.

Meanwhile, US Initial Jobless Claims increased by 238K in the week ending June 29, according to the US Department of Labour (DoL) on Thursday. This figure came in above the estimation of 235K and higher than the previous weekly gain of 233K. 
 
The US Federal Reserve (USD) officials indicated during their June meeting that inflation is moving in the right direction but not quickly enough for them to cut interest rates, FOMC minutes released Wednesday showed. Some policymakers emphasized the importance of patience before considering rate cuts, while several others stated that it’s necessary to hike again if inflation were to rebound.

On the Swiss front, the Swiss National Bank’s (SNB) interest rate cut for the second consecutive meeting in June continues to undermine the Swiss Franc (CHF). However, the uncertainty and 

Looking ahead, investors will take more cues from the Swiss Consumer Price Index (CPI) inflation data for June, which is expected to ease to 0.1% MoM from 0.3% in May. On an annual basis, the Swiss CPI is estimated to show an increase of 1.4% in June. 

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.

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