USD/CHF weakens below 0.7750 as Trump's speech weigh on US Dollar
- USD/CHF loses ground around 0.7730 in Wednesday’s early European session.
- Trump claimed economic success and called the tariffs ruling “unfortunate.”
- Traders will closely watch the developments surrounding the US and Iran tensions ahead of nuclear talks on Thursday.
The USD/CHF pair trades in negative territory near 0.7730 during the early European session on Wednesday. The US Dollar (USD) weakens against the Swiss Franc (CHF) after US President Donald Trump delivered his annual State of the Union address to Congress on Wednesday. The Swiss Q4 Gross Domestic Product (GDP) and US January Producer Price Index (PPI) reports will be the highlights later on Friday.
Trump said on Wednesday that he has overseen a "turnaround for the ages" and praised his economic achievements, focusing on lower inflation. He stated that his administration has made efforts to stem illegal immigration and fentanyl coming over the border. US President noted that “one of the main reasons for the US economic turnaround is tariffs,” adding that the US Supreme Court ruling on tariffs was “unfortunate.”
Nonetheless, Trump went on to tout his new 15% global tariffs under section 122 of the Trade Act. He stated, "They're a little more complicated, but they're probably better, leading to a solution that will be even stronger than before.” Uncertainty surrounding US tariffs could weigh on the Greenback in the near term.
Traders will closely monitor the developments surrounding the US and Iran tensions ahead of nuclear talks on Thursday in Geneva. The US embassy in Lebanon on Monday evacuated "dozens of its staff members" as a precaution amid anticipated regional developments. Any signs of rising tensions between the US and Iran could boost the safe-haven flows, supporting the Swiss Franc. However, positive developments after the nuclear talks could ease geopolitical risks and weigh on 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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