USD/CHF Edges Up as Traders Await Swiss Inflation Figures

Key Moments

FX Market Overview

USD/CHF is holding modest gains for the third consecutive session, trading near 0.7840 during Asian hours on Tuesday. The move comes as market participants position ahead of the April Consumer Price Index (CPI) report from the Swiss Federal Statistical Office, which is scheduled for release later in the day.

Swiss Data: Manufacturing Sentiment Improves

Fresh Swiss data at the start of the week pointed to a firmer backdrop in the industrial sector. On Monday, the Swiss SVME Manufacturing Purchasing Managers’ Index (PMI) climbed to 54.5 in April, up from 53.3 previously and above expectations of 52.0. This was the second consecutive month in expansion territory and the strongest reading since October 2022.

The improvement in sentiment within Swiss manufacturing has emerged despite continued volatility in the Middle East, indicating resilience in the sector.

Geopolitics and Risk Sentiment Support the Dollar

The USD/CHF pair is benefiting from a firmer US Dollar, supported by rising risk aversion following renewed geopolitical tensions. The Greenback is drawing safe-haven demand after Iran’s attack on the United Arab Emirates (UAE).

According to a report on Monday, CNBC said the UAE was targeted by Iranian drones and missiles, while the United States stated it had destroyed Iranian boats in the Strait of Hormuz. In response, US President Donald Trump warned that Iran would be “blown off the face of the earth” if it targets US ships protecting commercial vessels passing through the Strait.

Iran’s Foreign Minister Abbas Araghchi commented that the developments in the Strait of Hormuz demonstrate “clearly that there is no military solution to a political crisis.” “As talks are progressing with Pakistan’s gracious effort, the US should be cautious about being pulled back into a quagmire by ill-wishers. The same applies to the UAE,” Araghchi wrote in a post on X. “Project Freedom is Project Deadlock,” he added.

Fed Outlook and Treasury Yields Lift the Greenback

Beyond geopolitical factors, the US Dollar is also supported by higher Treasury yields and shifting expectations for Federal Reserve policy. Market participants are reassessing the interest-rate outlook amid concerns that inflation may remain elevated.

Minneapolis Fed President Neel Kashkari said Sunday that further rate increases cannot be ruled out, particularly as inflation risks stay elevated due to higher energy prices linked to the Iran conflict. This stance has reinforced expectations that the Fed may need to keep policy tighter for longer, underpinning the Greenback against the Swiss Franc.

Background: Swiss Franc Characteristics and Drivers

The Swiss Franc (CHF) is Switzerland’s official currency and is among the ten most traded currencies worldwide, with turnover that far exceeds the size of the domestic economy. Its value is influenced by overall market sentiment, the state of Switzerland’s economy, and policy decisions by the Swiss National Bank (SNB), among other elements.

Between 2011 and 2015, the Franc was pegged to the Euro (EUR). The abrupt removal of this peg triggered a more than 20% surge in CHF and caused turmoil in financial markets. Although the peg is no longer in place, the Franc’s performance remains closely linked to the Euro due to Switzerland’s high economic dependence on the neighboring Eurozone.

Why the Swiss Franc is Viewed as a Safe Haven

The Swiss Franc is widely regarded as a safe-haven asset that investors buy in periods of market stress. Factors underpinning this status include Switzerland’s reputation for economic stability, a strong export base, sizable central bank reserves, and a longstanding policy of political neutrality in global conflicts. During turbulent periods, these attributes often draw investors into CHF and can strengthen the currency against peers perceived as riskier.

Role of the Swiss National Bank

The Swiss National Bank sets monetary policy with the objective of maintaining annual inflation below 2%. It meets four times per year to decide on interest rates. When current or projected inflation exceeds its target, the SNB may raise its policy rate in an attempt to restrain price growth. Higher interest rates generally support the Swiss Franc by enhancing yields and making Swiss assets more attractive. Conversely, when rates are lowered, CHF typically faces downward pressure.

Economic Data and CHF Valuation

Macroeconomic releases are key inputs for assessing Switzerland’s economic trajectory and can influence CHF. While the Swiss economy is broadly stable, sudden changes in indicators such as growth, inflation, the current account, or the central bank’s foreign exchange reserves can drive notable moves in the currency.

In general, robust growth, low unemployment, and strong confidence are supportive of CHF. Data suggesting weakening momentum, by contrast, tends to weigh on the currency.

Impact of Eurozone Policy on the Swiss Franc

As a small and open economy, Switzerland relies heavily on the health of the Eurozone. The broader European Union is Switzerland’s primary economic partner and a key political counterpart, making macroeconomic and monetary stability in the Eurozone critical for Switzerland and the Swiss Franc.

Given this close integration, some models cited in the article suggest that the correlation between EUR and CHF can exceed 90%, indicating an almost perfect relationship between the two currencies’ fortunes.