USD/CHF wobbles above 0.8000 with trade fears looming
- The US edges higher above 0.8000 with market sentiment frail.
- The Greenback lost about 1% on Friday after Trump threatened 100% tariffs on China.
- In Switzerland, all eyes will be on the Producer and Import Prices release, due on Tuesday.
The US Dollar is hesitating right above the 0.8000 line against the Swiss Franc on Monday, with investors wary that the trade rift between the US and China might lead to a full-blown trade war.
US President Trump soothed investors on Sunday by easing his tone against China in a social media post that aims to cool off tensions. Investors, however, remain reluctant to take risks, which leaves the pair looking for direction, following a nearly 1% sell-off on Friday.
Trade war fears keep Dollar rallies limited
US President Trump shocked markets on Friday, announcing 100% additional tariffs on Chinese imports, which brought back fears of the “Liberation Day” and crushed risk appetite, sending the US Dollar lower across the board.
Chinese authorities defended the restriction of rare earths’ exports and affirmed that they were introduced in the trade talks with the US last month, adding that they do not fear a trade war and that they will retaliate to higher US tariffs.
The broader USD/CHF trend remains positive from mid-September lows, but concerns about further trade uncertainty, added to an extended US Government shutdown, might dent the US Dollar's recovery.
In Switzerland, the focus this week will be on September Producer and Import Prices, which are expected to have bounced up after four consecutive months of contraction. The Swiss Franc needs a clear rebound on price pressures to ease concerns about deflation, which keeps pressuring the SNB to cut interest rates into negative levels.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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