USD/CHF trades below 0.8950 after pulling back from six-month highs
- USD/CHF retreats after hitting 0.8974, a level not seen since July 2024, on Tuesday.
- CME FedWatch tool suggests almost fully pricing in a quarter basis point cut at its December meeting.
- SNB reiterated commitment to ensuring price stability over the medium term and expressed readiness to adjust monetary policy if necessary.
USD/CHF extends its losses after pulling back from a six-month high of 0.8974, reached on Tuesday. The pair trades around 0.8920 during the Asian hours on Wednesday. Traders are bracing for a potential 25 basis point rate cut by the US Federal Reserve (Fed) later in the North American session.
According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting. Additionally, traders will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.
On Tuesday, the US Census Bureau reported that US Retail Sales rose 0.7% MoM in November, compared to the 0.5% prior increase. Meanwhile, the Retail Sales Control Group increased 0.4% from the previous decline of 0.1%.
The Swiss Franc (CHF) came under pressure after the Swiss National Bank (SNB) unexpectedly cut its key interest rate by 50 basis points last week, surpassing expectations for a smaller reduction, as it seeks to address subdued inflation.
The SNB reaffirmed its commitment to maintaining price stability over the medium term, signaling readiness to adjust monetary policy if needed. The central bank noted that "underlying inflationary pressure has decreased again this quarter," with annual inflation declining from 1.1% in August to 0.7% in November, nearing the lower end of its target range of 0-2%.
Switzerland's State Secretariat for Economic Affairs (SECO) has revised its economic growth forecasts, projecting the Swiss economy to grow by 0.9% in 2023, down from the previous estimate of 1.2%. For 2024, the growth forecast has been adjusted to 1.5%, slightly lower than the earlier projection of 1.6%. The KOF Swiss Economic Institute forecasts growth of 1.4% in 2025 and 1.7% in 2026, anticipating weak foreign demand until mid-2025, followed by a gradual recovery.
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.