What is USD/CHF?
Known as “the Swissie,” the USD/CHF is one of the most traded currency pairs in the foreign exchange market. It represents the exchange rate between the United States dollar (USD) and the Swiss franc (CHF). The exchange rate tells you how much one US dollar is worth in Swiss francs.
The US dollar is the most widely traded currency in the world, held by the majority of central banks and investment institutions, and is the official currency of several countries, including Ecuador and Zimbabwe. The dollar is the currency of choice for international transactions and reserves due to the stability and dependability of the U.S. economy. Moreover, the dollar's dominance in international trade has significant implications for exchange rates and economic policies around the world, and it can serve as a benchmark for nations that choose to set or peg their currencies to the dollar's value.
The Swiss franc is often considered a safe-haven currency due to its reputation for stability and long history of maintaining its value. Historically, the franc experienced almost no inflation, and it was legally required to be backed by at least 40% in gold reserves.
Today, the Swiss franc's value is overseen by the Swiss National Bank and is influenced by several factors, including economic conditions, interest rates, inflation, and global market dynamics.
What affects the price of the USD/CHF pair?
In 1971, after the Bretton Woods agreement fell apart, the Swiss franc transitioned to a freely floating currency, gaining recognition as a safe-haven choice due to Switzerland's solid reputation and stability. During uncertain times, the Swiss franc tends to strengthen against other currencies.
However, it is worth noting that the Swiss National Bank (SNB) does occasionally step into the market, causing notable fluctuations. One of the most notable instances was the Swiss franc crisis in January 2015 when the SNB unexpectedly abandoned its 1.20 CHF to the Euro floor. This move led to a swift and substantial surge of the Swiss franc against all major currencies, including a 30% appreciation against the Euro in just minutes.
What to watch out for when trading USD/CHF?
Economic indicators such as Gross Domestic Product (GDP) growth, inflation, unemployment rates, trade balances, and consumer confidence can influence market sentiment and affect the USD/CHF exchange rate. For example, stronger economic performance in the US might lead to a stronger USD relative to the CHF.
Changes in interest rates set by the US Federal Reserve and the Swiss National Bank can have a significant impact on the USD/CHF exchange rate. Higher interest rates in the US relative to Switzerland can attract capital flows into the USD, potentially strengthening the USD against the CHF.
Swiss National Bank (SNB) actions can influence the Swiss franc's value through its monetary policy decisions, interventions in the foreign exchange market, and communication with the markets.
Keep a watch on data releases and statements from influential organisations in the United States and Switzerland when trading USD/CHF.
- Swiss National Bank (SNB) and US Federal Reserve Interest Rate decisions
- US and Switzerland GDP figures, Unemployment statistics, manufacturing and services Purchasing Managers Index (PMI), Trade Balance, and Inflation figures as shown in the Consumer Price Index (CPI)