USD/CHF drops to near 0.8250 as US Dollar retraces gains due to growing debt concerns
- USD/CHF trades lower as the US Dollar struggles due to growing concerns over the fiscal deficit in the United States.
- The Congressional Budget Office expects that Trump's “One Big Beautiful Bill” may increase the deficit by $3.8 billion.
- The safe-haven CHF receives support from increased risk-off sentiment due to growing US debt, tariff concerns, and geopolitical tensions.
USD/CHF retraces its recent gains registered in the previous session, trading around 0.8260 during the European hours on Friday. Meanwhile, the US Dollar Index (DXY), which tracks the US Dollar (USD) against a basket of six major currencies, is trading lower at around 99.60 near two-week lows. The Greenback stepped down due to growing debt concerns in the United States (US), while Trump's “One Big Beautiful Bill” is on its way to the Senate floor.
The US House of Representatives cleared Trump’s budget by a single vote of 215-214 on Thursday, which would deliver tax breaks on tip income and US-manufactured car loans. The proposal is expected to increase the deficit by $3.8 billion, according to the Congressional Budget Office (CBO).
However, the US Dollar received support as stronger US S&P Global Purchasing Managers’ Index (PMI) data dampened the odds of further rate cuts by the Federal Reserve (Fed) in upcoming policy meetings. S&P Global Composite PMI posted a 52.1 reading for May, rising from April’s 50.6 reading. Meanwhile, the Manufacturing PMI rose to 52.3 from 50.2 prior, while the Services PMI rose to 52.3 from 50.8.
Fed Governor Christopher Waller noted on Thursday, stated that if tariffs are close to 10%, the economy would be in good shape for H2, and the Fed could be in a position to cut interest rates later in the year. The CME FedWatch tool suggests that markets are pricing in nearly a 71% chance that the Fed would keep its interest rates steady through its June and July meetings.
The increased risk-off sentiment due to growing concerns over the US fiscal deficit, along with tariff concerns, raised the safe-haven demand for the Swiss Franc (CHF). Adding to this, geopolitical tensions supported the safe-haven demand. President Trump told European leaders that Russian President Vladimir Putin isn’t ready to end the war because he thinks he is winning. Trump proposed lower-level talks at the Vatican between Russia and Ukraine, instead of imposing sanctions.
The growing expectations of additional monetary easing by the Swiss National Bank (SNB) put downward pressure on the Swiss Franc, limiting the downside of the USD/CHF pair. SNB Chairman Martin Schlegel recently stated that all policy tools would be deployed, including a potential return to negative interest rates. However, Schlegel expressed a desire to avoid such measures. Markets are now broadly expecting a 25 basis-point cut to zero at the SNB's next policy meeting on June 19.
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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