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USD/CHF attracts some buyers near 0.9040, eyes on Fed’s Powell speech

fxstreet.com 2 days ago
  • USD/CHF jumps to the highest level since May 31 around 0.9040 in Tuesday’s early European session. 
  • Recent US ISM PMI data showed a contraction in US manufacturing sector activity for June.
  • The safe-haven flows amid political uncertainty and Middle East geopolitical tensions might underpin the CHF.

The USD/CHF pair gains traction near 0.9040, the highest level since May 31 during the early European session on Tuesday. The strength of the Greenback and higher US bond yields provide some support for the pair. Investors await the speech by Federal Reserve (Fed) Chairman Jerome Powell on Tuesday for fresh impetus. 

The recent weaker-than-expected US economic data triggered the expectations that the US Federal Reserve (Fed) will cut interest rates in September and December. The US Manufacturing Purchasing Managers Index (PMI) came in below the market consensus, dropping to 48.5 from 48.7 in May, the Institute for Supply Management (ISM) revealed on Monday. Traders have priced in nearly 59.5% odds of 25 basis points (bps) of a Fed rate cut in September, up from 58.2% last Friday, according to the CME FedWatch Tool. 

However, the Fed's cautious stance continues to lend strength to the Greenback and US Treasury yields. San Francisco Fed President Mary Daly emphasized on Friday that "If inflation stays sticky or comes down slowly, rates would need to be higher for longer.” 

On the Swiss front, market players will keep an eye on the Swiss Consumer Price Index (CPI) data for June, which is due on Thursday. This report could offer some hints about the rate-cutting cycle from the SNB in the September meeting. Apart from this, the political uncertainty and geopolitical tensions in the Middle East might boost safe haven assets like the Swiss Franc (CHF). This, in turn, might cap the upside for the pair. 

SNB FAQs

What is the Swiss National Bank?

The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.

How does the Swiss National Bank interest-rate policy affect the Swiss Franc?

The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive 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.

Does the Swiss National Bank intervene in the forex market?

Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.

When does the Swiss National Bank Governing Council decide on monetary policy?

The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.

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