- USD/CHF drifts lower to near 1.3690 in Friday’s Asian session.
- Escalating tensions in the Middle East support the Swiss Franc.
- The SNB cuts interest rates to zero at its June meeting on Thursday.
The USD/CHF pair loses momentum to around 1.3690, snapping the three-day winning streak during the Asian trading hours on Friday. Fears of US involvement in Middle East conflict spark demand for the Swiss Franc (CHF), a safe-haven currency. The US Philly Fed Manufacturing Index will be published later on Friday.
The conflict between Israel and Iran has entered its seventh day. The White House said US President Donald Trump will make a decision within the next two weeks about whether to join Israel in the war. Uncertainties about a raging war in the Middle East and the fear that direct US involvement would widen the conflict boost the safe-haven flows, supporting the Swiss Franc and creating a headwind for the pair.
On Thursday, the Swiss National Bank (SNB) decided to cut its interest rate by 25 basis points from 0.25% to zero at its June meeting and did not rule out returning borrowing costs to negative territory in the future. The CHF has strengthened against the US dollar after the rate decision.
“Unless the situation changes drastically between now and September… today’s decision paves the way for a further rate cut in September and a return to negative interest rates,” said Charlotte de Montpellier, an economist at ING Bank.
On the other hand, the hawkish tone from the US Federal Reserve (Fed) could underpin the Greenback. The US central bank left its key borrowing rate unchanged on Wednesday and retained projections for two quarter-point rate cuts this year. Fed Chair Jerome Powell signaled a cautious note about further easing ahead, saying that he expects “meaningful” inflation ahead as a result of Trump’s aggressive trade tariffs.
