Market Data 
- USD/CHF depreciates due to a rising likelihood of a bumper 50 basis points rate cut by the Fed on Wednesday.
- Lower Treasury yields contribute to downward pressure for the US Dollar.
- The solid Swiss Franc fuels speculation that the SNB could implement a significant rate cut in 2024.
USD/CHF extends its decline for the third successive session, trading around 0.8550 during the Asian hours on Monday. This downside of the USD/CHF pair could be attributed to rising odds of the US Federal Reserve opting for a jumbo 50 basis points rate cut at its upcoming monetary policy meeting scheduled for Wednesday.
The US Dollar (USD) faces challenges as Treasury yields decline. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, trades around 100.80 with 2-year and 10-year yields on US Treasury bonds standing at 3.58% and 3.65%, respectively, at the time of writing.
On the data front, the University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, exceeding the market expectations of a 68.0 reading 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, data showed on Friday.
The Swiss Franc (CHF) shows strength, fueling speculation that the Swiss National Bank (SNB) could be the first major central bank to implement a significant rate cut this year. Economists predict the SNB might announce a 25 basis points rate cut at its September meeting.
Additionally, 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, 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.
