USD/CHF Reaches Nearly Five-Month High
- Swiss Franc Weakens After SNB Rate Cut
- Fed Expected to Cut Rates
The USD/CHF pair is aiming to revisit a five-month high of 0.8960 in Friday’s North American session. The Swiss Franc pair is ticking higher as the outlook of the Swiss currency has weakened across the board after the Swiss National Bank (SNB) surprisingly reduced its key borrowing rates by 50 basis points (bps) to 0.5% on Thursday.
SNB Rate Cut and Market Expectations
Market participants anticipated the SNB cutting interest rates by 25 bps as the central bank remained worried about the risks of inflation undershooting the bank’s target and growing concerns over the global markets due to potential tariffs by United States (US) President-elect Donald Trump.
After a larger-than-usual interest rate cut decision, SNB Chairman Martin Schlegel commented, “With our easing of monetary policy today we are countering the lower inflationary pressure.” On the interest rate outlook, Schlegel said, “We will continue to monitor the situation closely, and will adjust our monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.”
Fed Rate Cut Expectation and USD Movement
Meanwhile, the US Dollar (USD) surrenders its intraday gains and turns negative as the Federal Reserve (Fed) is widely anticipated to cut its key borrowing rates by 25 bps to 4.25%-4.50% in the policy meeting on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls back to near 106.75 after facing selling pressure above 107.00.
Though the Fed is certain to cut interest rates next week, it is expected to pause the policy-easing cycle in January as progress in disinflation appears to have stalled. According to the CME FedWatch tool, there is a 77% chance that the Fed will leave interest rates unchanged next month.
Swiss Franc FAQs
What is the Swiss Franc?
The Swiss Franc (CHF) is Switzerland’s official currency and is among the top ten most traded currencies globally. Its value is influenced by market sentiment, economic health, and actions taken by the Swiss National Bank (SNB).
Why is the Swiss Franc a Safe-Haven Asset?
The Swiss Franc is considered a safe-haven asset due to Switzerland’s stable economy, strong export sector, central bank reserves, and political neutrality in global conflicts.
How Does the SNB Influence the Swiss Franc?
The Swiss National Bank (SNB) meets quarterly to decide on monetary policy and aims for an annual inflation rate of less than 2%. Changes in interest rates can impact the value of the Swiss Franc.
What Impacts the Swiss Franc’s Valuation?
Macroeconomic data releases, economic growth, inflation, current account, and the central bank’s reserves can impact the Swiss Franc’s valuation. Stability in the Eurozone also plays a significant role.
Analysis
The USD/CHF pair is responding to the SNB rate cut and market expectations, while the USD movement is influenced by the anticipated Fed rate cut. Understanding these factors is crucial for investors and individuals alike, as they provide insights into the global economic landscape and how it can impact their financial decisions.
For investors, keeping an eye on central bank decisions, economic indicators, and currency movements is essential for making informed investment choices. Individuals should also be aware of these factors as they can affect currency exchange rates, inflation, and overall economic stability, which in turn can impact their purchasing power and financial well-being.