- The USD / CHF opposes approximately 0.8335 during the first European session on Tuesday.
- Economic uncertainty and Fed rate reduction bets weigh on the US dollar.
- SNB Schlegel warns that high market uncertainty is a “poison” for growth.
The USD / CHF pair remains under the pressure of the sale of approximately 0.8335 at the start of the European session on Tuesday. The growing bets according to which the Federal Reserve (Fed) will further reduce loan costs this year will weigh on the greenback against the Swiss franc. Later Tuesday, officials of the Federal Reserve (Fed) should speak, notably Thomas Barkin, Alberto Musalem, Adriana Kugler, Raphael Bostic, Mary C. Daly and Beth M. Hammack.
Last week, Moody downgraded his note for American sovereign credits, citing concerns about the increase in the burden of the country 36 billions of the country. The demotion highlights increasing concerns concerning budgetary deterioration and distortions induced by prices under the American president Donald Trump and exerts some sales pressure on the greenback.
Meanwhile, Fed officials maintain caution and call for more clarity before engaging in policy changes, which increases the USD. The markets are now prices in almost 91.6% rate of rate of 4.25% to 4.50% at the June meeting and a possibility of 65.1% without change in July, according to the CME Fedwatch tool.
The president of the Swiss National Bank (SNB), Martin Schlegel, said on Monday that the uncertainty of the financial market is currently “very high”, noting that in these moments, the appetite for the CHF refuge increases. The president of the SNB would not comment what could happen next month, but stressed that the “interest rate of Switzerland has a great influence on the exchange rate”.
FAQ Swiss Franc
The Swiss franc (CHF) is the official currency of Switzerland. It is one of the first ten most negotiated currencies in the world, reaching volumes that are well exceeding the size of the Swiss economy. Its value is determined by the general feeling of the market, economic health or the measures of the country taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss franc was set at the Euro (EUR). The PEG was suddenly withdrawn, resulting in an increase of more than 20% of the value of the franc, causing a turmoil on the markets. Even if the ankle is no longer in force, the Fortunes du CHF tend to be strongly correlated with those Euro due to the high dependence of the Swiss economy with regard to the neighboring euro zone.
The Frankish Swiss (CHF) is considered to be a swell asset of of course, or a currency that investors tend to buy during the market stress period. This is due to the perceived status of Switzerland in the world: a stable economy, a solid export sector, large reserves of central banking or a long -standing political position for neutrality in world conflicts make the country's currency a good choice for investors fleeing risks. Turbulent times are likely to strengthen the value of CHF compared to other currencies which are considered more risky to invest.
The Swiss National Bank (SNB) meets four times a year – once a quarter, less than the other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is greater than the objective or planned to be higher than the objective in the foreseeable future, the bank will try to energize prices by increasing its policy rate. Higher interest rates are generally positive for the Swiss franc (CHF) because they lead to higher yields, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data versions in Switzerland are essential to assess the state of the economy and can have an impact on the evaluation of the Swiss franc (CHF). The Swiss economy is largely stable, but any sudden change in economic growth, inflation, the current account or the currency reserves of the Central Bank has the potential to trigger movements in CHF. Generally, high economic growth, low unemployment and great confidence are good for CHFs. Conversely, if the economic data indicate a weakening of the momentum, the CHF is likely to depreciate.
As a small and open economy, Switzerland strongly depends on the health of the neighboring economies of the euro zone. The broader European Union is the main economic partner of Switzerland and a key political ally, so that the stability of macroeconomic and monetary policy in the euro zone is essential for Switzerland and, therefore, for the Swiss franc (CHF). With such dependence, some models suggest that the correlation between the fortune of the euro (EUR) and the CHF is greater than 90%, or close to perfection.
