- The USD / CHF faces the pressure as the US dollar is weakening, dragged by a drop in American yields.
- The yields of the American treasury can recover on the improvement of the feeling of global trade and the chances of discoloration of the reduction in the imminent Fed rate.
- SNB president Martin Schlegel said the central bank remains open to new rate drops if economic conditions justify it.
Friday, USD / CHF bordered lower during Asian trade, oscillating approximately 0.8310 after publishing gains during the two previous sessions. The pair was under pressure while the US dollar (USD) softens, weighed down as the yields of the US Treasury decreased. At the time of writing the editorial staff, yields of 2 years and 10 years were 4.36% and 3.86% respectively.
However, American yields had previously found support for improving the feeling of world trade and reducing expectations for the short -term federal reserve rate (Fed). Market confidence was supported after President Donald Trump announced a preliminary trade agreement with the United Kingdom, marking the first agreement since the United States made general prices last month.
Focus is now traveling to preliminary commercial discussions of American China scheduled for this weekend in Switzerland. However, the two parties played the probability of any significant breakthrough. Trump maintained a firm position on China, underlined by the appointment of a new envoy to Beijing. Although talks about potential price exemptions are underway, Trump stressed that the United States “does not look for as many exemptions”.
Meanwhile, Chinese Foreign Drive Minister Hua Chunying has reaffirmed China resilience, declaring that the country has “full confidence” in the management of trade tensions with the United States and the ability to resist continuous challenges.
On the Swiss Front, expectations for new interest rate drops by the Swiss National Bank (SNB) intensified after President Martin Schlegel suggested that the central bank was ready to further reduce rates if necessary. Schlegel also referred to the potential return of zero or negative rate in a context of continuous economic uncertainty.
The data on Swiss inflation added to the dominant prospects, the consumer price index of April showing zero growth in annual sliding and central inflation decreasing sharply, increasing the speculation of a rate drop at the SNB meeting on June 19.
FAQ Swiss Franc
The Swiss franc (CHF) is the official currency of Switzerland. It is one of the first ten most negotiated currencies in the world, reaching volumes that are well exceeding the size of the Swiss economy. Its value is determined by the general feeling of the market, economic health or the measures of the country taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss franc was set at the Euro (EUR). The PEG was suddenly withdrawn, resulting in an increase of more than 20% of the value of the franc, causing a turmoil on the markets. Even if the ankle is no longer in force, the Fortunes du CHF tend to be strongly correlated with those Euro due to the high dependence of the Swiss economy with regard to the neighboring euro zone.
The Frankish Swiss (CHF) is considered to be a swell asset of of course, or a currency that investors tend to buy during the market stress period. This is due to the perceived status of Switzerland in the world: a stable economy, a solid export sector, large reserves of central banking or a long -standing political position for neutrality in world conflicts make the country's currency a good choice for investors fleeing risks. Turbulent times are likely to strengthen the value of CHF compared to other currencies which are considered more risky to invest.
The Swiss National Bank (SNB) meets four times a year – once a quarter, less than the other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is greater than the objective or planned to be higher than the objective in the foreseeable future, the bank will try to energize prices by increasing its policy rate. Higher interest rates are generally positive for the Swiss franc (CHF) because they lead to higher yields, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data versions in Switzerland are essential to assess the state of the economy and can have an impact on the evaluation of the Swiss franc (CHF). The Swiss economy is largely stable, but any sudden change in economic growth, inflation, the current account or the currency reserves of the Central Bank has the potential to trigger movements in CHF. Generally, high economic growth, low unemployment and great confidence are good for CHFs. Conversely, if the economic data indicate a weakening of the momentum, the CHF is likely to depreciate.
As a small and open economy, Switzerland strongly depends on the health of the neighboring economies of the euro zone. The broader European Union is the main economic partner of Switzerland and a key political ally, so that the stability of macroeconomic and monetary policy in the euro zone is essential for Switzerland and, therefore, for the Swiss franc (CHF). With such dependence, some models suggest that the correlation between the fortune of the euro (EUR) and the CHF is greater than 90%, or close to perfection.
