Forex traders are betting on Swiss Franc. Here's why.
Discover why forex traders are flocking to the Swiss Franc amid weak US economic data and rising global recession fears. Learn about the impact on USD/CHF, US unemployment, and potential Fed rate cuts.
Key Points
- USD/CHF fell below 0.8600, its lowest level since February, due to weak US economic data and a flight-to-quality bid in Swiss francs.
- The US unemployment rate rose to 4.3%, marking the third consecutive monthly increase and highlighting labor market concerns.
- The S&P 500 Volatility Index (VIX) surged above 20.00 for the first time in 2024, indicating rising fears of a US recession.
- Fed Funds futures are pricing in over a 90% chance of US interest rates being 100 basis points lower by 2025, suggesting significant rate cuts ahead.
- With USD/CHF approaching 0.8400, its lowest level in a decade, the future direction of the US dollar remains uncertain amid ongoing economic challenges.
USD/CHF crashes under 0.8600
The USD/CHF pair has fallen below 0.8600, reaching its lowest level since February. This decline is largely driven by weak US economic data and a strong flight-to-quality bid in Swiss francs. The significant drop highlights investor movement towards safer assets amidst growing economic uncertainties.
US unemployment becoming a problem
The US unemployment rate rose unexpectedly for the third consecutive month, hitting 4.3%. This increase signals mounting issues within the US labor market, raising concerns about potential economic instability and influencing market sentiment negatively.
US recession fear rising
The S&P 500 Implied Volatility Index (VIX) surged well above 20.00 for the first time in 2024, reaching its highest level in over a year. This spike in volatility reflects growing fears of a US recession, as investors become increasingly cautious about the economic outlook.
CHF: Safe haven, flight to quality
The Swiss franc has strengthened significantly, acting as a safe haven amid heightened market fear. Historically, the CHF is positively correlated with stock market fear, especially during periods of high volatility, further attracting investors seeking stability. Recent behavior underscores its role as a go-to asset during times of market turmoil.
US interest rates could fall 1% or more
Fed Funds futures are now pricing in over a 90% chance that US interest rates will be 100 basis points lower by 2025. This expectation of significant rate cuts indicates that the Federal Reserve may implement aggressive monetary easing to counteract economic challenges. With only three scheduled meetings left in the year, the possibility of an emergency rate cut is becoming more likely.
Where next for US dollar?
With USD/CHF trading closer and closer to 0.8400, the lowest level in the last decade, the future trajectory of the US dollar remains uncertain. As economic data evolves and market conditions shift, traders are closely monitoring potential developments and strategic opportunities in the forex market. Given the current market dynamics, the US dollar could experience further declines if negative sentiment continues to dominate.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.