DEFINITION of USD/CHF (U.S. Dollar/Swiss Franc)
The CHF is the abbreviation for the U.S. dollar and Swiss franc (USD/CHF) pair or cross for the currencies of the United States and Switzerland. The currency pair shows how many Swiss francs (the quote currency) are needed to purchase one U.S. dollar (the base currency).
Trading the USD/CHF currency pair is also known as trading the "Swissie."
BREAKING DOWN USD/CHF (U.S. Dollar/Swiss Franc)
The value of the USD/CHF pair is quoted as 1 U.S. dollar per x Swiss francs. For example, if the pair is trading at 1.50 it means that it takes 1.5 Swiss francs to buy 1 U.S. dollar.
The USD/CHF is affected by factors that influence the value of the U.S. dollar and/or the Swiss franc in relation to each other and other currencies. For this reason, the interest rate differential between the Federal Reserve (Fed) and the Swiss National Bank (SNB) will affect the value of these currencies when compared to each other. When the Fed intervenes in open market activities to make the U.S. dollar stronger, for example, the value of the USD/CHF cross could increase, due to a strengthening of the U.S. dollar when compared to the Swiss franc.
Great Recession and Ensuing Intervention
The Swiss franc is a safe haven currency, meaning in times of market stress or high volatility the franc will appreciate, conversely, in a low volatility market when equities are moving higher, the franc will under perform. The Swiss franc and Japanese yen are considered the two most popular safe haven currency trades.
During the Great Recession, the Swiss franc appreciated against all major trading partners apart from the Japanese yen. The strength of the currency began to impact the economy, which led to the SNB intervening in the currency market. The SNB attempted to half the appreciation of the franc against the euro. After a number of attempts, the intervention finally failed and in 2014, the franc exploded, rallying more than 25 percent in a few minutes as the SNB essentially gave up.
The chaos caused major disruption in markets with many retailer brokers suffering as their clients were stopped out for large losses that they were unable to fund due to the speed of the decline.
The USD/CHF tends to have a negative correlation with the EUR/USD and GBP/USD currency pairs. This is due to the positive correlation of the euro, Swiss franc and the British pound.