USD/CHF extends downside below 0.8800 amid trade war concerns
- USD/CHF weakens to near 0.8790 in Monday’s early European session, losing 0.18% on the day.
- Geopolitical tensions and trade war concerns underpin the Swiss Franc, a safe-haven currency.
- Fed’s Daly still sees two interest-rate cuts this year as a "reasonable" projection.
The USD/CHF pair extends the decline to around 0.8790 during the early European session on Monday, pressured by the weaker US Dollar (USD). Traders await on the sidelines ahead of a planned announcement on Wednesday by US President Donald Trump on reciprocal tariffs.
US President Donald Trump said on Sunday that reciprocal tariffs he is set to announce on Wednesday will include all countries, not just a smaller group of 10 to 15 countries with the biggest trade imbalances. The concerns over an escalating global trade war, along with fears of a recession in the US, exert some selling pressure on the Greenback against the Swiss Franc (CHF).
San Francisco Federal Reserve Bank President Mary Daly noted on Friday that she expects two rate cuts this year, but with robust economic indicators, Fed officials can hold off on cutting rates until they evaluate how businesses adapt to tariff costs. According to the CME FedWatch tool, swaps traders continued to price in about two quarter-point rate cuts this year, with the first seen coming in July.
Meanwhile, Israel has resumed airstrikes in Gaza and deployed troops in Syria, while the US stepped up its attack on Houthi rebels in Yemen. Additionally, Trump said on Sunday that he was "pissed off" at Russian President Vladimir Putin and would impose secondary tariffs of 25% to 50% on buyers of Russian oil if he feels Moscow is blocking his efforts to end the war in Ukraine. Traders will closely monitor the developments surrounding geopolitical risks. Any signs of escalation could boost the safe-haven demand, supporting the CHF.
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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