The safe-haven Swiss franc has moved lower with declining US dollar index and weaker US bond yields, towards levels seen in the first week of March.
The Swiss franc has been steadily declining throughout April. It touched a peak of 0.9475 on April 1 but is on a slow decline towards the 0.9150 levels. The USD/CHF currency pair is below the 200-EMA, which is at 0.9180 levels. The decline in the US dollar and the US bond yields have brought down the value of the Swiss franc.
The coronavirus pandemic has decreased economic activity. Despite the vaccination drive, more people are affected by the virus. However, easing of restriction from April 19 will improve situations, say experts.
Safe-Haven Swiss Franc to the US Dollar
The Swiss franc moves in tandem with the US dollar. The US dollar index has moved lower in April, exerting pressure on the Swiss currency.
The USD/CHF rose to its highest mark to 0.9475 on April 1, at levels last seen in July 2020. It is trading above the psychological mark at 0.9100 levels.
Despite good data from the US economy, the dollar remains bearish. The fed is expected to keep interest rates near zero for a longer duration. There is high inflation in the country, but the current inflation is transitory states the fed, which has exerted greater pressure on the dollar.
The US dollar has declined to a one-month low at 91.017 during trading hours on Tuesday, April 20. The decline in the US dollar has dragged the USD/CHF currency pair lower.
The 10-year US bond has declined from 1.776% in March to 1.5280 in April. The lower US bond yield has lowered the value of the franc. The decline in the US bond yield has brought down the value of the US dollar too.
The SNB has announced that it was ready to intervene in its currency market after the US Treasury reported that it was ready to delist the agency from the list of currency manipulators.
Pandemic Creates Havoc on the Swiss Economy
Switzerland is one of the worst affected countries by the coronavirus pandemic. The GDP has dropped in 2020 and might contract further in the first quarter of 2021, by another 0.6%, say experts. The pandemic has kept investors away from the US dollar, causing a decline in the US dollar and the safe-haven Swiss franc.
The pandemic has brought down economic activity in the economy, and the USD/CHF currency pair has moved higher. It touched a nine-month top on April 1. Fear of another wave of coronavirus infections keeps investors away from further investments.
Retail sales slipped 6.3% year-on-year in February. In January, it saw a decrease of 0.7%. Recreation activities have come down along with a decrease in the purchase of household equipment. Consumer prices saw an increase of 0.34% in March, while they increased in February by 0.16%.
Restaurants and bars that were closed down in December have reopened. Leisure facilities, sports facilities, and cinemas will also reopen, says the government. However, people have been warned to maintain social distancing to avoid a fresh spike in cases. Health Minister Alain Berset announced that coronavirus restrictions will be relaxed from Monday, April 19.
The lack of big economic data is another reason for the USD/CHF to drift lower.
Monetary Policy by the Swiss National Bank
The Swiss National Bank is expected to keep up its expansionary monetary policy. Interest rates on sight deposits are the world’s lowest at -0.75%. The SNB has announced that it would intervene whenever necessary, in its meeting on March 25. The SNB is expected to maintain the same interest rates until 2022.
Interest rates in the country were forced to go below zero in the country after the financial crisis of 2008. The SNB lowered interest rates to -0.75% to avoid further upward momentum in the Swiss franc. The Swiss franc is a safe-haven currency preferred by investors. The SNB had to introduce negative interest rates to evade an economic depression during the financial crisis of 2008 and make it less attractive to investors.
The recent attack by the United States that Switzerland was a currency manipulator was objected to by the SNB. The SNB states that negative interest rates and foreign exchange intervention were important to curb the appreciation of the Swiss franc.
Unemployment Rate Improves
Switzerland’s unemployment rate decreased to 3.4% in March 2021, from 3.6% in February. It is the lowest figure over six months. The number of young unemployed has come down, indicating more job opportunities. The most affected were those below 30 years of age. With business closures and higher restrictions, job opportunities are dwindling. The removal of coronavirus restriction will help to improve the employment rate, say experts.
EUR/CHF Moves Lower
The EUR/CHF has moved lower from the March highs at 1.1150. In March, it saw a brief bounce but continued its decline again in April. The franc may ease further once business activities increase and the economy improves.