USD/CHF holds position above 0.8450 after paring gains, Swiss Trade Balance data eyed

• USD/CHF maintains its position as the US Dollar appreciates after post-meeting comments from Fed’s Chair Powell.
• Fed’s Powell stated that 50 basis point rate cuts are not the “new pace”.
• The solid CHF leads to speculation of the SNB implementing a significant rate cut in 2024.

USD/CHF holds its gains around 0.8480 during Thursday’s Asian hours following a volatile session on Wednesday due to the US Federal Reserve’s (Fed) interest rate decision. Despite the Fed’s aggressive 50 basis point (bps) rate cut, the US Dollar (USD) recovered its daily losses due to the remarks made by Fed Chair Jerome Powell.

In the post-meeting press conference, Fed’s Powell stated that the central bank is not in a hurry to ease policy and emphasized that half-percentage point rate cuts are not the "new pace”. Furthermore, he commented on the aggressive 50 basis point rate cut, saying, “This decision reflects our increased confidence that, with the right adjustments to our policy approach, we can maintain a strong labor market, achieve moderate economic growth, and bring inflation down to a sustainable 2% level.”

Fed policymakers updated their quarterly economic forecasts, raising the median projection for unemployment to 4.4% by the end of 2024, up from the 4.0% estimate in June. They also increased their long-term projection for the federal funds rate from 2.8% to 2.9%.

The recent upside of the Swiss Franc (CHF) is leading to speculation that the Swiss National Bank (SNB) could be the first major central bank to implement a significant rate cut this year. Traders are likely to pay close attention to the Trade Balance data scheduled for release on Thursday. This report could provide valuable insights into the Swiss economic conditions.

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.

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