USD/CHF tumbles below 0.8450 amid risk-off mood, eyes on FOMC Minutes
- USD/CHF trades in negative territory for the third consecutive day around 0.8435 in Wednesday’s early European session.
- Rising risk aversion amid tariff turmoil boosts the Swiss Franc, a safe haven currency.
- US trade tariffs potentially push the SNB closer to negative interest rates with inflation near zero.
The USD/CHF pair extends its downside to near 0.8435 during the early European session. The Swiss Franc (CHF) edges higher against the US Dollar (USD) as traders seek refuge from the intensifying market turmoil caused by US President Donald Trump’s sweeping tariffs and fears of a global recession.
Worries about the economic slowdown and potential recession in the United States exert some selling pressure on the Greenback as markets return to pricing in more rate cuts from the Federal Reserve (Fed) this year. The markets have priced in a nearly 65% chance of a Fed cut in May, and futures now point to about 100 basis points (bps) worth of rate reductions by December, according to the CME FedWatch tool.
Late Tuesday, US Customs and Border Protection said that it is prepared to begin collecting country-specific tariffs from 86 US trade partners. Trump noted that he wasn’t considering a pause on his plan to implement sweeping additional tariffs on dozens of countries despite contact from trade partners seeking to avoid the levies but hinted he would be open to some negotiations. The uncertainty surrounding trade policy and fears of global recession by Trump’s policy could boost the CHF, a safe-haven currency.
Trump shocked world markets by announcing reciprocal tariffs for most of the global economy and imposed heavier tariffs for Switzerland than its neighbors in the European Union or Britain. This prompted economists to trim forecasts for Swiss economic growth and expect that the Swiss National Bank (SNB) will again cut the interest rates. Markets are currently leaning towards another 25 basis point (bps) rate cut by the Swiss central bank, according to LSEG data.
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.
Recommended Articles
