USD/CHF weakens amid geopolitical tensions, Fed scrutiny

• USD/CHF weakens amid rising geopolitical tensions and increased demand for safe-haven assets.
• Concerns over the independence of the US central bank undermine the Greenback.
• Expectations of US rate cuts continue to weigh on the US Dollar.

USD/CHF trades around 0.7970 on Monday at the time of writing, down 0.55% on the day, after snapping a four-day winning streak. The pair is weighed down by a stronger Swiss Franc (CHF), supported by safe-haven flows as global markets face heightened geopolitical and political risks.

The Swiss Franc is benefiting from renewed demand as investors look to reduce exposure to risk-sensitive assets. Tensions in the Middle East remain elevated following comments from US President Donald Trump, who warned Tehran against using force on protesters and hinted that action could be considered if the situation escalates. Iranian officials, for their part, cautioned against any intervention by the United States (US) or Israel, reinforcing risk aversion across global markets.

In Europe, discussions about strengthening military presence in Greenland add another layer of geopolitical uncertainty. The United Kingdom (UK) and Germany are considering increasing their engagement in the Arctic, with Berlin potentially proposing a joint North Atlantic Treaty Organization (NATO) mission. UK Prime Minister Keir Starmer has urged allies to step up efforts in the High North, amid renewed remarks from Donald Trump advocating US ownership of Greenland.

On the monetary policy front, the Swiss Franc also finds support in expectations surrounding the Swiss National Bank (SNB). Swiss inflation edged higher to 0.1% YoY in December, marking its first increase since July, but it remains near the lower bound of the central bank’s 0%-2% target range. This development reinforces the view that the SNB is likely to keep its policy rate at 0% in the coming meetings, with inflation expected to rise gradually alongside the economic recovery.

On the other side, the US Dollar (USD) is weakened by unfavorable political and institutional developments. Traders are adopting a cautious stance after federal prosecutors opened a criminal investigation into Federal Reserve (Fed) Chair Jerome Powell. According to media reports, the probe focuses on the renovation project of the central bank’s Washington headquarters and on whether Powell may have misled Congress, reviving concerns about the Fed’s independence.

The Greenback is also pressured by the prospect of further interest rate cuts in the United States. Recent labor market data reinforce this view, with job creation falling short of expectations in December. Nonfarm Payrolls (NFP) rose by 50,000, compared with 56,000 in the previous month and below the market forecast of 60,000, even as the Unemployment Rate edged down to 4.4%. This backdrop fuels bets on additional monetary easing, adding to downside pressure on the US Dollar and keeping USD/CHF below the psychological 0.8000 level.