USD/CHF Depreciates Amidst Rate Cut Speculation
Rising Likelihood of a 50 Basis Points Rate Cut by the Fed
- The USD/CHF pair extends its decline for the third consecutive session, trading around 0.8550 during the Asian hours on Monday.
- This downside could be attributed to the increasing odds of the US Federal Reserve opting for a jumbo 50 basis points rate cut at its upcoming monetary policy meeting scheduled for Wednesday.
Impact of Lower Treasury Yields on the US Dollar
- The US Dollar (USD) faces challenges as Treasury yields decline.
- The US Dollar Index (DXY) trades around 100.80 with 2-year and 10-year yields on US Treasury bonds standing at 3.58% and 3.65%, respectively.
Strength of the Swiss Franc and Speculation on SNB Rate Cut
- The solid Swiss Franc fuels speculation that the Swiss National Bank (SNB) could implement a significant rate cut in 2024.
- Economists predict the SNB might announce a 25 basis points rate cut at its September meeting.
On the data front, the University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, exceeding market expectations and marking a four-month high. This increase reflects a gradual improvement in consumers’ outlook on the US economy after months of declining economic expectations.
Swiss inflation fell to 1.1% year-on-year in August, heightening speculation about a potential rate cut. Traders are expected to closely monitor this week’s Trade Balance data to assess Swiss economic conditions.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, valued based on various factors like market sentiment, economic health, and SNB actions.
Why is the Swiss Franc a Safe-Haven Asset?
The CHF is considered a safe-haven asset due to Switzerland’s stable economy, strong export sector, central bank reserves, and political neutrality.
How Does the SNB Impact the Swiss Franc?
The SNB meets quarterly to decide on monetary policy, aiming for an inflation rate below 2%. Policy rate changes affect the CHF’s value, with higher rates strengthening and lower rates weakening the currency.
How Do Macroeconomic Data Releases Affect the Swiss Franc?
Macroeconomic data in Switzerland, such as economic growth, inflation, and unemployment, impact the CHF’s valuation. Positive data strengthens the CHF, while negative data leads to depreciation.
What is the Relationship Between the Eurozone and the Swiss Franc?
Switzerland’s economy is closely tied to the Eurozone, with over 90% correlation between the Euro (EUR) and the Swiss Franc (CHF).