USD/CHF plummets below 0.8000 as US Dollar underperforms across the board
- USD/CHF plunges over 5% to near 0.7985 amid weakness in the US Dollar.
- EU-US tensions over Greenland’s sovereignty have weighed on the US Dollar.
- Investors await SNB Schlegel’s speech for fresh cues on the Swiss interest rate outlook.
The USD/CHF pair is down 0.55% to near 0.7985 during the late Asian trading session on Monday. The Swiss pair faces intense selling pressure as tensions between the Eurozone and the United States (US) over Washington’s desire to purchase Greenland have weighed heavily on the US Dollar.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.25% lower to near 99.15.
On Saturday, US President Donald Trump threatened 10% tariffs on imports from several EU members, which includes Denmark, Sweden, France, Germany, the Netherlands and Finland, along with Britain and Norway, which will come into effect on February 1. Trump slapped additional tariffs as EU members as they condemned US plans of “complete and total purchase” of Greenland.
EU members vowed measured response against US President Trump’s tariff threats, with European Commission (EC) President Ursula von der Leyen warning through a post on X, "Territorial integrity and sovereignty are fundamental principles of international law. Tariffs would undermine transatlantic relations and risk a dangerous downward spiral."
Meanwhile, tensions between the US and the EU over Greenland’s sovereignty have improved the safe-haven demand of the Swiss Franc (CHF), outperforming across the board.
This week, investors will pay close attention to speeches from global central bankers in the World Economic Forum (WEF) at Davos, starting from Tuesday. Swiss National Bank (SNB) Chairman Martin Schlegel is scheduled to speak at the WEF on Tuesday.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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