- USD/CHF jumps to near 0.8900 as the SNB cuts its key borrowing rates by 50 bps to 0.5% against estimates of a 25 bps interest rate reduction.
- SNB Schlegel kept the option of negative interest rates on the table in his last commentary in November.
- An expected growth in the US inflation pushes Fed rate cut bets to the threshold.
The USD/CHF pair surges to a fresh two-week high near 0.8900 as Swiss Franc (CHF) dives after the Swiss National Bank (SNB) surprisingly reduces its key borrowing rates by 50 basis points (bps) to 0.5%. This is the fourth straight interest rate cut by the SNB in a row but first larger-than-usual. The SNB was anticipated to reduce interest rates but at a slower pace of 25 bps to 0.75%.
SNB’s rate-cut expectations were based on extremely dovish remarks from SNB Chairman Martin Schlegel at an event in Zurich in late November. "I want to emphasize that lower interest rates, plus negative interest rates, are not excluded from our toolbox," Schlegel said.
Schlegel chose dovish remarks for the interest rate guidance as inflationary pressures in the Swiss economy have remained in their desired range of 0%-2% since June 2023. The Annual Swiss Consumer Price Index (CPI) decelerated to 0.6% in October.
Meanwhile, the US Dollar (USD) trades slightly lower as traders have priced in 25 bps interest rate reduction by the Federal Reserve (Fed) to 4.25%-4.50% for the policy meeting on Wednesday. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, edges lower to near 106.50.
Fed dovish bets strengthened after the release of the United States (US) Consumer Price Index (CPI) data for November, which showed a moderate growth in rental prices. Annual headline and core CPI – which strips off volatile food and energy prices – rose in line with estimates of 2.7% and 3.3%, respectively.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD struggles to build on previous week's gains, stays below 1.0500
EUR/USD stays under modest bearish pressure and trades below 1.0500 on Monday. The cautious market mood supports the US Dollar and limits the pair's upside, while trading action remains subdued, with US markets remaining closed on Presidents' Day.
GBP/USD ranges near 1.2600 as US Dollar steadies
GBP/USD fluctuates in a tight channel near 1.2600 in the second half of the day on Monday. Trading volumes are likely to remain thin as financial markets in the US enjoy a log weekend in observance of the Presidents' Day holiday.
Gold clings to modest daily gains near $2,900
Gold regains its traction and trades in positive territory near $2,900 following Friday's sharp decline. Although financial markets in the US remain closed on Monday, investors will scrutinize political headlines and comments from Fed officials.
Five fundamentals for the week: Peace talks, Fed minutes and German election stand out Premium
US President Donald Trump remains prominent, especially in a week when high-level peace talks kick off. Nevertheless, the Commander-in-Chief competes with the world's most powerful central bank, and other events are of interest as well.
Bitcoin Price Forecast: BTC stalemate soon coming to an end
Bitcoin price has been consolidating between $94,000 and $100,000 for almost two weeks. Amid this consolidation, investor sentiment remains indecisive, with US spot ETFs recording a $580.2 million net outflow last week, signaling institutional demand weakness.
The Best Brokers of the Year
SPONSORED Explore top-quality choices worldwide and locally. Compare key features like spreads, leverage, and platforms. Find the right broker for your needs, whether trading CFDs, Forex pairs like EUR/USD, or commodities like Gold.