USD/CHF flat lines near 0.7950, US-China tariff talks in focus
- USD/CHF trades flat around 0.7950 in Monday’s early European session.
- Risk-on sentiment from the US-EU tariff deal might weigh on the Swiss Franc, a safe-haven currency.
- The Fed interest rate decision will be the highlight later on Wednesday, with no change in rates expected.
The USD/CHF pair holds steady near 0.7950 during the early European trading hours on Monday. Progress on the US-EU trade deal might hit safe-haven demand and undermine the Swiss Franc (CHF). Investors brace for further developments surrounding the US-China trade deal as US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are scheduled to meet on Monday in Stockholm.
The CHF pares gains against the US Dollar (USD) from improved risk appetite after the US and EU announced a trade framework agreement, setting a blanket 15% tariff on goods traded between them. The 15% tariff rates will take effect on August 1.
Additionally, the South China Morning Post (SCMP) reported on Sunday that the US and China are expected to extend their tariff truce and will not impose additional tariffs on each other during the extension. It is also reported that the US has frozen export controls on key technology to China in hopes of keeping smoother trade relations, per the Financial Times. Easing fears that US President Donald Trump’s tariff policies will impact global economic growth might contribute to the CHF’s downside.
The US Federal Reserve (Fed) interest rate decision will take center stage later on Wednesday. The Fed is widely expected to hold rates at their current levels at its July meeting. Markets have priced in nearly a 62% odds of a rate cut in the September meeting, according to the CME FedWatch tool. Investors will take more cues from the press conference for some hints about the timeline of rate reduction this year. Any dovish comments from Fed officials could cap the upside for the pair.
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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