Should You Invest In USD/CHF?

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10,686,397 USD/CHF positions opened on eToro

Who should consider trading the US dollar/Swiss franc?

  1. Anyone with a well-founded view of where the relative interest rates of the US and Switzerland are likely to go. It is this, rather than the flow of trade, that is the primary influence on the exchange rate.

  2. Someone who has studied past currency dealing patterns between the two currencies and believes they have a thorough understanding of how they are likely to interact.

  3. Day traders. The ebb and flow of funds between these monetary poles provides ample opportunity for profit-seeking by those able to duck in and out of foreign-exchange markets.

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What do I need to know about the US dollar and the Swiss franc?
  • The US dollar is the mainstay of the world financial system, the chief reserve asset for other governments and bodies such as the International Monetary Fund.

  • The Swiss franc is an essentially national currency that has become an international asset almost by default and in opposition to the wishes of the country’s governors.

  • The dollar has repeatedly been devalued since it came off the gold standard in 1933.

  • The Swiss franc has by far the best anti-inflationary record of any currency and was backed by gold held at the Swiss National Bank until 2000.

On the other hand…
  • The dollar is issued by a country with an important financial services and banking industry. So is the Swiss franc.

  • The dollar is widely accepted internationally, regardless of the relationship between the US and the country concerned. The same is true of the Swiss franc.

  • The dollar is widely cited in international contracts and used as the denomination in which agreements will be settled. So is the Swiss franc.

  • Along with the United States and its territories, the dollar is also the currency of some of independent territories including the Federated States of Micronesia. Aside from Switzerland, the franc is the currency of neighbouring Liechtenstein and the Italian exclave of Campioni d’Italia.

What are the factors behind the dollar/franc relationship?

Relative interest rates. Both currencies are, in a sense, in competition for international funds and the prevailing rates of interest are the most obvious indication of their comparative attractions.

Geo-political and economic conditions. Both currencies are seen as safe havens by investors, although the franc is favoured during particularly unnerving periods of turbulence, not least because of Switzerland’s long history of neutrality. By contrast, the dollar is likely to do well when world economic conditions are buoyant. Two-thirds of world trade is dollar-denominated, and a boom will see overseas demand for the dollars needed to settle those trades.

The efforts of the Swiss to prevent the franc from either becoming a reserve currency or from rising too high on foreign exchanges and strangling Swiss exports. America has had only occasionally to worry about an over-strong currency – for the Swiss, it is a constant preoccupation, and the authorities have no wish to shoulder the responsibilities that come with reserve-currency status.

The long-term decline of the dollar against the franc. In June 2001, a dollar bought 1.80 francs. By September 2011, the dollar had lost a whole franc and was trading at 0.80 francs. In the Spring of 2017, it was roughly at parity. This hasn’t made the franc a one-way bet against the dollar as there have been many fluctuations over this period. But it illustrates the fact that the Swiss are a lot more worried by the thought of inflation than are the Americans.

The basics of trading the dollar/Swiss franc
  1. The simplest method would be to buy or sell the currencies through a trading account with a financial institution or even through your own bank. This can, however, be costly and time-consuming.

  2. You could use futures and options, derivative products that let you trade currencies, or any other asset, without having to take possession of the currency in question. But if a futures position goes wrong, you can lose more than your original stake.

  3. Contracts for difference (CFDs), which in a relatively short time have become the most popular way to trade on all types of financial markets. A CFD is, as the name suggests, a contract between a trader and broker to pay each other the difference in the price of an asset between the day the contract is signed and the day it is terminated. They are leveraged products, meaning you can gain exposure by investing only a percentage of the full value of the trade you want. Whilst this gives opportunity for greater profit, you risk losing more than your deposit if the market moves against you. A second risk is that rapid price changes can cause your account balance to change quickly. If you do not have enough funds in your account to cover these situations, there is a risk your position may be closed automatically when your balance falls below a certain level, known as the close-out level. Stop-orders can limit risk but, in fast moving markets, prices might rise above or fall below the desired level before a sale can be executed. This may increase losses.

eToro offers CFD trading for the US dollar/Swiss franc

What do I need to know about the foreign exchange market in general?

There is only one monetary asset against which all currencies can rise or fall at the same time, and that is gold, until recently the Swiss central banker’s best friend. All the others – dollars, francs, euro and pounds – can only appreciate (or depreciate) if another currency depreciates (or appreciates).

This is known as a zero-sum game and helps explain the sometimes rough and ready nature of currency trading. It also helps explain the frequent criticism that currency speculation is a fruitless activity.

This is unfair when you consider that an exchange rate is simply the price of one currency expressed in another – and, of course, vice versa. Currencies are, by their nature, traded in ‘pairs’, and to buy the one you have to sell the other.

Currency traders are simply trying to establish where that price ought to be.

What should I consider regarding trading the US dollar/Swiss franc?

Both are solid currencies which, for different reasons, are in constant demand on world exchange markets, so you should have no trouble finding a buyer for your dollars or francs. However, they have little in common beyond their international status and short-term movements between them can be far from predictable.

Is trading the US dollar/Swiss francs right for you?

It may be, if you are confident you have taken a well-grounded view on the next movements in the dollar/franc exchange rate.

*This content is intended for educational purposes only, and shouldn't be considered investment advice.

*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.


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