Swiss Franc advances as US Dollar weakens on Fed rate pause expectations
- USD/CHF depreciates as the US Dollar (USD) declines on Fed rate-hold bets in October.
- Safe-haven demand eases after US President Donald Trump ruled out immediate military strikes against Iran.
- Europe's fiscal concerns and lower bond yields boosted the franc, while inflation remains tied to oil prices.
USD/CHF depreciates after registering over 0.5% gains the previous day, trading around 0.8230 during Asian hours on Monday. The pair loses ground as the US Dollar (USD) declines as the Federal Reserve (Fed) is widely expected to hold interest rates steady before potentially pursuing another rate hike in December.
According to the CME FedWatch Tool, markets are currently pricing in a 90.6% probability of a rate pause at the October 27–28 policy meeting, alongside a 79.7% chance of a hike in December.
Moreover, the Greenback faces challenges due to easing safe-haven demand, driven by US President Donald Trump ruling out immediate military action against Iran, stating, “there will not be a strike today,” according to Al Jazeera.
However, market anxiety persists over the possibility of strikes resuming after this week’s Israeli elections and next week’s US midterm elections, with reports indicating Iran is prepared to retaliate by targeting Israel and the UAE.
The Swiss Franc (CHF) gained strength as the yield on the Swiss 10-year government bond fell to 0.5%, driven by safe-haven demand amid growing concerns over Europe's fiscal outlook. At the same time, Swiss National Bank (SNB) Meeting Minutes revealed that policymakers observed inflationary pressures with no signs of spillover effects into the broader economy, attributing the recent rise in inflation primarily to higher oil prices and the depreciation of the Franc.
Strategists at UOB Group maintain a cautious, negative stance on USD/CHF over the 1–3 week horizon, noting that they have "been holding a negative USD view since late last week." In their latest update from Monday, 19 October, when the pair was trading around 0.8240, they highlighted that the Dollar "could decline further to 0.8200." That move has since materialised, with USD/CHF breaking below 0.8200 yesterday and "reaching a low of 0.8190."
UOB now judges that while the Dollar "could continue to decline," the absence of "significant increase in downward momentum" casts doubt on whether the next downside objective at 0.8140 is attainable in the current move. On the topside, the bank flags 0.8250 as the key level to watch, reiterating that "a breach of 0.8250 (‘strong resistance’ level previously at 0.8275) would indicate that USD is not declining further."
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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