USD/CHF weakens below 0.9000 ahead of Powell and Fedspeak

• USD/CHF loses ground, snapping the three-day winning streak around 0.8970 on Wednesday. 

• Fed’s Powell noted that the central bank is moving closer to feeling comfortable about interest rate cuts.

• Political uncertainties and geopolitical risks might boost the safe-haven asset like the CHF. 

The USD/CHF pair trims gains near 0.8970 during the early European session on Wednesday. The downward momentum of the pair is supported by the softer Greenback after Jerome Powell's Semiannual Monetary Policy Report on Wednesday.

The US Federal Reserve Chair Jerome Powell indicated the central bank is moving closer to feeling comfortable about interest rate cuts. He further stated that evidence of cooler inflation and that more "good data" could open the door to interest rate cuts.

The financial market is now pricing in 74% odds of a Fed rate cut in September, up from 71% last Friday, according to data from the CME FedWatch Tool. However, the Federal Open Market Committee (FOMC) members at their June meeting indicated just one cut this year. The expectation of a Fed rate cut might exert some selling pressure on the US Dollar (USD) in the near term.

Traders will focus on the weaker Greenback ahead of the US Consumer Price Index (CPI) inflation data on Thursday will be the highlights this week. The US CPI is estimated to show a rise of 3.1% YoY in June, compared to a 3.3% rise in May.  Core inflation is projected to remain steady at 3.4% YoY in June. Any signs of further consolidation f Grold

On the Swiss front, the signs of cooler inflationary pressures in Switzerland might fuel the Swiss National Bank (SNB) to continue cutting interest rates further, which is likely to exert some selling pressure on the Swiss Franc (CHF). Nonetheless, the downside of CHF might be limited amid political uncertainties in France and geopolitical tensions in the Middle East.

Swiss economy FAQs

Where does Switzerland stand in terms of economic power?

Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.

Where does Swiss economic growth come from?

Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.

How does the Swiss economy impact the Swiss Franc’s valuation?

As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.

Do commodity prices impact the Swiss Franc’s valuation?

Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.