US Dollar – Swiss franc (USD/CHF)
The USD/CHF currency pair is among the most commonly traded pairs in the global forex market, presenting the sixth-largest volume worldwide according to the most recent survey by the Bank for International Settlements. The popularity is tied to strong trade and investment connections between the U.S. and Switzerland, in addition to the Swiss franc's long-held reputation as a safe-haven currency for investors around the globe.
Switzerland is a significant destination for U.S. direct investment. With direct investments of US$129.8 billion, the U.S. is the third-ranking country of origin for foreign direct investments in Switzerland. The U.S. is Switzerland's top destination for foreign direct investment (FDI), accounting for a fifth of the total Swiss FDI abroad, and receiving more Swiss direct investment than Germany, France, Italy and the UK combined. Switzerland ranks as the sixth-largest foreign investor in the U.S., with more than US$209 billion in direct investment there.
Additionally, the U.S. is Switzerland's second-largest trade partner after Germany, accounting for a 10% share of Switzerland's foreign trade. Switzerland is the U.S.'s 17th-largest trade partner, accounting for a 1.4% share of the U.S.'s total trade. Together, the two countries exchange an average of more than US$50 billion in goods and services annually.
The Swiss franc, which launched in 1850, has long been recognised as a safe-haven currency for international investors. This is because of conservative management and stability of the Swiss economy, in addition to the country's history of maintaining bank secrecy laws that protect the privacy of investor accounts. As a consequence of these factors, the currency has traditionally shown low volatility and is one of the most highly sought and traded currencies around the globe.
In addition to the attractive qualities of the Swiss financial rules for foreign investors and the country's efforts to maintain a low inflation rate, the Swiss franc's low volatility is owed in part to the Swiss National Bank's commitment to maintain the franc at a level stronger than 1.20 versus the euro through the selling of francs and purchases of euros. With this peg, the franc-dollar trade tended to track the euro-dollar trade very closely, for the most part.
The Swiss central bank, however, abandoned that program in January 2015, allowing the franc to plummet more than 30% to 0.85 per euro ahead of the European Central Bank's move to begin a large-scale bond-buying program aimed at quantitative easing for euro-area monetary policy. The bond-buying program was seen increasing demand for safe-haven currencies such as the Swiss franc and making the EUR/CHF ceiling difficult to defend. The move to eliminate the ceiling, which left the franc trading stronger against the euro, came as a surprise to most traders. This in turned caused extremely thin short-term liquidity, sharp volatility and some painful aftershocks for Switzerland's stock market and its key export and tourism sectors.
Although the franc has remained relatively stable since then, the move had the effect of altering the perceptions of traders about the possible risks involved in trading even what seemed the most liquid currencies, like the Swiss franc.
Doubts have also arisen about the Swiss franc's future status as a safe-haven currency after the U.S. government launched an aggressive campaign to penalise Swiss banks for hiding information about U.S. taxpayers holding bank accounts in the Central European nation.
These developments may allow for some surprises in USD/CHF's rate in the future. However, traders note that because of Switzerland's historically strong financial and trade ties with the eurozone community, the franc will likely remain highly correlated to the euro. Correlation between movements in the two currencies in 2015 was at a level considered high in forex markets. This relationship results in a negative correlation for the currency pairs of USD/CHF and EUR/USD, meaning in 2015 they often moved in differing directions.
Key Facts USD/CHF
U.S. Dollar (USD)
- Currency overview: The U.S. dollar is the most widely used currency around the world and considered a reserve currency for most central banks. Global commodities prices and trade statistics are usually expressed in dollars.
- Central bank: The Federal Reserve System
- Currency code: USD
- History: The dollar was launched in 1792 as the official currency of the U.S.
- Economy: The U.S. economy is the largest in the world with a GDP of US$17 trillion.
- Currency subunits: Cent (¢) = 1/100 of a dollar
- Denominations: Bills: $1, $2, $5, $10, $20, $50, $100; Coins: 1¢, 5¢, 10¢, 25¢, 50¢, $1
- Countries using the U.S. dollar: United States and territories, Caribbean Netherlands (Bonaire, Saba, Sint Eustatius), Ecuador, El Salvador and Panama
- Currencies pegged to the U.S. dollar: Bahrain dinar, Cuban peso, Djibouti franc, Eritrea nafka, Jordan dinar, Lebanon pound, Oman rial, Panama balboa, Qatar riyal, Saudi Arabia riyal, United Arab Emirates dirham and Venezuela bolivar.
Swiss Franc (CHF)
- Currency overview: The Swiss franc is one of few independently traded currencies in Western Europe not included in the eurozone and is widely considered a safe-haven currency for investors globally.
- Central bank: The Swiss National Bank
- Currency code: CHF
- History: The Swiss franc was introduced in 1850 as the official currency of Switzerland.
- Economy: The Swiss economy is the 40th largest in the world with a GDP of US$700 billion. It is highly diversified, with strong manufacturing, financial and service sectors.
- Currency subunits: Rappen = 1/100 of a franc
- Denominations: Bills: 10, 20, 50, 100, 200 and 1,000 francs; Coins: 5, 10, 20 rappen, and ½, 1, 2 and 5 francs
- Countries and territories using the Swiss franc: Switzerland and Lichtenstein.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…