USD/CHF drops to near 0.8200 due to increased safe-haven demand
- USD/CHF depreciates amid increased safe-haven demand following increasing concerns regarding slow growth and renewed inflation in the US.
- Trump plans to boost import tariffs from 25% to 50% to secure the US steel industry.
- The Swiss National Bank is widely expected to bring interest rate to zero in June’s policy meeting.
USD/CHF continues its losing streak for the third successive session, trading around 0.8210 during the Asian hours on Monday. The pair loses ground as the US Dollar (USD) may face challenges amid growing concerns regarding slow growth and renewed inflation in the United States (US). US President Donald Trump threatened to double import tariffs on steel and aluminum, increasing them to 50% from 25%.
Additionally, the Swiss Franc (CHF) receives support from increased safe-haven demand following decision by the US Court of Appeals for the Federal Circuit in Washington, on Thursday, temporarily allowed President Trump's tariffs to take effect. The decision has reversed a Wednesday’s judgement made by a three-judge panel at the Court of International Trade in Manhattan to halt Trump from imposing "Liberation Day" tariffs from taking effect.
Traders keep their eyes on the Swiss National Bank (SNB) monetary policy outlook, with a widely expectations of rate cut to zero in June’s policy meeting. Deflation risks in Swiss economy remain a key concern with headline CPI flat year-over-year in April and core inflation easing to 0.6% from 0.9%.
The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is trading near 99.20 at the time of writing. Traders will likely observe US ISM Manufacturing Purchasing Managers' Index (PMI) for May will be eyed later in the North American session.
US President Donald Trump noted on Friday that he planned to increase import tariffs on steel and aluminum, which may build up pressure on global steel producers and intensify the trade war. "We are going to be imposing a 25% increase. We're going to bring it from 25% to 50% - the tariffs on steel into the United States, which will even further secure the steel industry in the US," he said, per Reuters.
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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