- USD/CHF extends its losses as the US Dollar continues to lose ground for the third successive session on Thursday.
- Stronger-than-expected US inflation in January has increased the likelihood of the Fed keeping current interest rates for an extended period.
- Swiss CPI dropped to 0.4% YoY in January 2025, its lowest level since April 2021.
USD/CHF depreciates approximately 0.50%, trading around 0.9080 during the European hours on Thursday. The decline of the pair could be attributed to weaker US Dollar (USD). The US Dollar Index (DXY), which measures the USD’s value against six major currencies, extends its losses for the third successive session and trades around 107.70 at the time of writing. Traders await the US Producer Price Index (PPI) inflation due later in the day.
In economic data, the US Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index (CPI) rose 3.0% year-over-year in January, surpassing the expected 2.9%. Core CPI, which excludes food and energy, increased to 3.3% from 3.2%, exceeding the forecast of 3.1%. On a monthly basis, headline inflation accelerated to 0.5% in January from 0.4% in December, while core CPI climbed to 0.4% from 0.2%.
Stronger-than-expected US inflation data has reinforced expectations that the Federal Reserve (Fed) will keep interest rates at 4.25%-4.50% for an extended period. According to the CME FedWatch Tool, the likelihood of a Fed rate cut in June has now dropped to nearly 30%.
Fed Chair Jerome Powell noted that while inflation has moderated, the central bank still has work to do. Speaking on Tuesday, Powell emphasized that the Fed is in no rush to cut interest rates, citing continued strength in the labor market and solid economic growth.
The Swiss Franc (CHF), known as a safe-haven currency, may have strengthened amid rising geopolitical tensions in the Middle East. Israeli Prime Minister Benjamin Netanyahu announced late Tuesday that the ceasefire would end, and Israel would resume “intense fighting” in Gaza if Hamas failed to release “our hostages” by Saturday noon.
On Thursday, Switzerland's Consumer Price Index (CPI) inflation fell to 0.4% year-over-year in January 2025, aligning with market expectations and decelerating from 0.6% in December. This marks the lowest level since April 2021. On a monthly basis, the CPI declined by 0.1%, maintaining the same pace as the previous period.
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.
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