USD/CHF falls to lowest level since August 2011 on Greenback weakness
- USD/CHF plunges to its lowest level since August 2011 amid broad-based US Dollar selling.
- Trump tariff threats and Yen intervention reports weigh on the Greenback.
- Focus turns to the Fed's interest rate decision and the Swiss ZEW expectations survey on Wednesday.
USD/CHF comes under heavy selling pressure on Tuesday, sliding more than 1% as broad-based weakness in the US Dollar (USD) fuels demand for the Swiss Franc (CHF). At the time of writing, the pair is trading around 0.7666, marking its lowest level since August 2011.
The Swiss Franc is drawing support from its safe-haven appeal as investors increasingly question the US Dollar’s role as the world’s dominant reserve currency.
Confidence in US assets has been shaken by President Donald Trump’s disruptive trade agenda, repeated tariff threats and renewed concerns over political interference in the Federal Reserve (Fed), all of which are eroding policy credibility and fueling fresh “Sell America” and currency debasement narratives.
US President Donald Trump escalated trade rhetoric on Monday, announcing plans to raise tariffs on South Korean imports to 25% from 15%. Trump said South Korea’s legislature has failed to approve a trade agreement reached last year and warned that higher duties would be imposed on autos, lumber and pharmaceutical products.
Adding to the pressure, reports of possible coordinated FX intervention to support the Japanese Yen have accelerated Dollar selling, forcing traders to unwind long-USD positions across the board.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, fell to its lowest level since February 2022, trading near 96.20, down nearly 0.87% on the day.
The sharp appreciation of the Swiss Franc is also putting the Swiss National Bank (SNB) back in focus, as excessive CHF strength can weigh on Switzerland’s export-dependent economy and complicate the SNB’s price-stability mandate.
With Switzerland already struggling with a very low inflation environment, continued Franc strength risks pushing inflation even lower. Against this backdrop, the risk of SNB intervention or even a potential return to negative interest rates is rising.
Attention now turns to the Federal Reserve’s (Fed) interest rate decision due on Wednesday. While the central bank is widely expected to leave rates unchanged, markets will be closely watching Chair Jerome Powell’s post-meeting remarks for signals on the monetary policy outlook. Any shift in tone could influence near-term expectations for rate cuts and shape the next directional move in the US Dollar.
The Swiss ZEW Survey – Expectations for January is also due on Wednesday.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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