USD/CHF trades with mild losses below 0.9050 as traders brace for US PMI release

USD/CHF posts modest losses to around 0.9020 in Monday’s early European session.
The rising bets of Fed rate cuts weigh on the US Dollar.
The uncertainty and escalating tension boost safe-haven assets like the Swiss Franc

The USD/CHF pair trades with mild losses near 0.9020 during the early European session on Tuesday. The weaker US Dollar (USD) broadly drags the pair lower. Traders will take more cues from the US ISM Manufacturing PMI report, which is due later on Monday. On Friday, the attention will shift to the US ISM Manufacturing PMI data.

Meanwhile, the US Dollar Index ( DXY), a measure of the value of the USD against a basket of six foreign currencies, weakens to nearly 107.25. Traders continue to price in the chance that the US Federal Reserve (Fed) will cut interest rates by a quarter of a percentage point twice by the end of this year. This, in turn, weighs on the Greenback against the Swiss Franc (CHF).

Additionally, the uncertainty and escalating tension surrounding the Russia and Ukraine conflict could boost the safe-haven demand, benefiting the Swiss Franc (CHF). US President Donald Trump stated on the weekend that Ukrainian President Volodymyr Zelenskyy was disrespectful" and canceled the signing of a minerals deal that would have brought Ukraine closer to resolving its conflict with Russia. Investors will closely monitor the developments surrounding Russia's headlines.

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.