Swiss Franc weakens as the Greenback firms amid easing US-China trade tensions
- The Swiss Franc weakens as risk appetite improves and the US Dollar extends its rebound.
- The Greenback stays supported amid optimism over potential easing in US-China trade tensions.
- Trump’s contradictory remarks on China keep markets cautious ahead of key trade discussions in Malaysia.
The Swiss Franc (CHF) weakens against the US Dollar (USD) on Tuesday, as the Greenback extends gains and fading risk aversion curbs demand for the Franc. At the time of writing, USD/CHF trades around 0.7960, up nearly 0.43% on the day, recovering modestly after briefly touching a one-month low near 0.7873 last week.
The Greenback strengthens across the board amid hopes of easing trade tensions between the United States (US) and China. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is hovering around one-week highs near 98.90, extending gains for the third straight day.
On Monday, US President Donald Trump voiced optimism about reaching what he called a “fair and great deal” with China during the upcoming APEC Summit in South Korea. However, uncertainty lingers as Trump’s tone shifted on Tuesday, telling reporters that “maybe the meeting won’t happen” with Chinese President Xi Jinping.
The mixed messaging has kept markets on edge, though investors remain focused on upcoming high-level trade talks in Malaysia, where US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are set to meet later this week.
The renewed strength in the US Dollar could prove short-lived, as the broader outlook remains tilted to the downside. President Trump’s unpredictable trade rhetoric continues to unsettle investors, undermining confidence and raising the risk of renewed disruptions to global trade flows. Meanwhile, the prolonged US government shutdown is beginning to cloud the near-term growth outlook, with delayed economic data releases and reduced public spending adding to uncertainty.
In parallel, expectations of further interest rate cuts by the Federal Reserve (Fed) are keeping the Greenback’s upside in check. Markets now see a 25-basis-point rate cut as a near certainty at the October 29-30 monetary policy meeting, while Friday’s Consumer Price Index (CPI) data could still sway sentiment depending on how inflation trends evolve.
In Switzerland, official trade data released on Tuesday by the Federal Office for Customs and Border Security (FOCBS) showed the country’s trade surplus narrowing to CHF 10.2 billion in the third quarter, down from CHF 12.6 billion in the previous quarter.
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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