USD/CHF accelerates its reversal to levels near 0.8100
- The Swiss franc rallies against a weaker USD on risk-averse markets.
- The "Sell America" returns with US tariffs back into focus.
- Soft US inflation figures have boosted hopes of Fed cuts in September.
The US Dollar is being hammered across the board, with the safe-haven CHF rallying on risk aversion. A mix of scepticism about Trump’s ability to reach any significant trade agreement and soft US inflation figures, which have boosted hopes of further Fed easing, is crushing the US Dollar.
The USD/CHF accelerated its reversal from Tuesday’s highs near 0.8250 and is trading 0.8% lower on Thursday, reaching intra-day lows at 0.8120 and drawing closer to a multi-year low at 01840.
The “Sell America” trade returns
The trade truce between the US and China announced failed to convince investors. The agreement, which still needs to be ratified by Chinese President Xi Jinping, basically restores the trade terms already settled in Geneva last month, with tariffs still at high levels and significant trade restrictions. Not the deal the market was hoping for.
If that was not enough to sour market sentiment, Trump stirred the pot further by announcing letters to all trading partners specifying the demands to avoid higher tariffs from June 9.
The risk-averse sentiment is weighing on the US Dollar, already hit by the soft US inflation figures seen on Wednesday, which have boosted expectations of further Fed rate cuts in September. Later today, the US PPI release will be closely watched to confirm this view.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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