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USD/CHF holds below 0.9050 amid year-end holiday season

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USD/CHF holds below 0.9050 amid year-end holiday season

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New update 2024.12.30 16:22
USD/CHF holds below 0.9050 amid year-end holiday season

update 2024.12.30 16:22

  • USD/CHF trades with a mild negative bias near 0.9020 in Monday's early European session.
  • Fed officials signaled the likelihood of fewer interest rate cuts in 2025, which might support the USD.
  • The uncertainty and geopolitical risks could boost the CHF, a safe-haven currency.

The USD/CHF pair trades with mild losses around 0.9020 amid the cautious mood during the early European trading hours on Monday. The trading volumes will be light in another holiday-shortened week as traders await the New Year holiday. On Friday, the US ISM Manufacturing Manufacturing Purchasing Managers Index (PMI) for December will be in the spotlight.

The elevated inflation in the US and the concern that President-elect Donald Trump's policies could fuel inflation, the US Federal Reserve (Fed) signaled that it's likely to cut rates more gradually in 2025 than it had projected in September. Fed officials see two rate cuts next year, down from four reductions they predicted three months ago. The growing expectations of fewer rate cuts next year by the US Federal Reserve (Fed) in 2025 could underpin the US Dollar (USD) against the Swiss Franc (CHF).

On the other hand, the uncertainty about the economic outlook and geopolitical tensions in the Middle East could boost the safe-haven flows, benefiting the CHF. The Israeli military announced on Saturday a fresh operation in the Beit Hanoun area. According to Reuters, rocket shooting into Israel resumed on Sunday despite the heavy operation.

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.

 

Date

Created

 : 2024.12.30

Update

Last updated

 : 2024.12.30

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