USD/CHF rebounds toward 0.7800 as US Dollar gains on Trump tariff threats
- USD/CHF rises after President Trump threatened 100% tariffs on Canada if Ottawa strikes a trade deal with China.
- The US Dollar could further fall on intervention rumors after reports of a New York Fed rate check supporting the Yen.
- The Swiss Franc may find support as Goldman Sachs views it as the top FX hedge against central bank risks.
USD/CHF rises after opening at a gap down, trading around 0.7770 during the Asian hours on Monday. The pair appreciates as the US Dollar (USD) recovers its daily losses, supported by the increased risk aversion after US President Donald Trump threatened to impose 100% tariffs on Canadian goods if Ottawa were to strike a trade deal with China, the BBC reported over the weekend.
Canada’s Prime Minister Mark Carney said on Sunday that Ottawa has no plans to seek a free trade agreement with China, clarifying that recent engagement with Beijing only lowered tariffs in a few recently affected sectors.
The USD/CHF pair faced challenges as the Greenback declined on rumors of a possible intervention in FX markets to support the Japanese Yen (JPY). According to Bloomberg, traders said the Federal Reserve Bank of New York had carried out a so-called rate check with major banks, requesting indicative exchange rates, a step widely viewed as a signal that authorities may be preparing to facilitate another intervention.
The Swiss franc (CHF) could find support after Goldman Sachs said it remains the best-placed global FX hedge against central bank subordination risks. The firm noted that, beyond its traditional safe-haven role, the currency is uniquely resilient to global inflation pressures.
Goldman Sachs also highlighted that Switzerland’s strong fiscal fundamentals enhance the currency's safe-haven appeal, helping shield it from cross-market spillovers during episodes of fiscal stress.
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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