USD/CHF retreats to levels near 0.8000 on broad-based Dollar weakness
- The US Dollar pares gains and nears 0.8000 amid a brighter market mood
- Risk appetite prevails on Friday following bright US earnings reports and dovish comments from Fed Waller.
- US macroeconomic data seen this week practically discards a July rate cut.
The US Dollar is paring previous gains against the Swiss Franc on Friday, retreating from three-week highs at 0.8060 and approaching the 0.8000 psychological level. The Swiss Franc is holding better than the US Dollar, with most safe havens losing ground as risk appetite returns to the markets.
A slew of upbeat corporate results boosted market sentiment on Thursday, pushing the diminishing hopes of Federal Reserve rate cuts to the background. Investors reacted by buying equities and sending the main Wall Street indexes higher, while US Treasury yields and the US Dollar turned lower.
Market optimism extended through the Asian and European sessions, supported by the dovish comments of Fed Chairman Christopher Waller, who maintained his view on the need to cut interest rates amid higher risks to employment and growth. These comments highlight the division within the Fed committee and keep hopes of further Fed monetary easing alive.
Somewhat earlier, the Dollar had rallied to multi-week highs against several majors, including the CHF, after US Retail Sales and Initial Jobless Claims figures beat expectations. These figures confirmed the resilience of the US economy and provided further reasons for the Federal Reserve to keep interest rates on hold for some more time.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.