USD/CHF tumbles to below 0.8050 on tariff uncertainty
- USD/CHF slumps to near 0.8030 in Friday’s early European session, down 0.30% on the day.
- The Swiss Franc gains traction due to concerns over trade tensions and Fed policy uncertainty.
- Upbeat US economic data have bolstered the Fed's rate-cut delay.
The USD/CHF pair tumbles to around 0.8030 during the early European session on Friday. Persistent trade tensions and Federal Reserve (Fed) policy uncertainty boost the safe-haven demand, supporting the Swiss Franc (CHF). The preliminary reading of the University of Michigan Consumer Sentiment will be the highlight later on Friday. Also, the US Building Permits and Housing Starts will be released.
Concerns over the economic impact of US President Donald Trump’s tariff policies, the US fiscal and debt outlook, and the Fed’s independence provide some support to the safe-haven assets like the CHF and act as a headwind for the pair. Trump said on Wednesday that he intends to send a letter telling more than 150 trade partners what tariff rate they will face.
Data release on Thursday indicated strength in the US economy. The US Initial Jobless Claims for the week ending July 12 came in at 221,000, marking a decline of 7,000 from the previous week, according to the Labor Department. Meanwhile, US Retail Sales rose more than expected in June, the US Census Bureau showed. Retail sales rose by 0.6% MoM in June versus -0.9% in May, beating the 0.1% estimate.
Strong US economic data supported the view that the Fed can afford to wait a while longer before cutting interest rates again, which might underpin the US Dollar (USD). Financial markets are now pricing in a September starting date for rate cuts, and Fed officials penciled in two easings later this year, according to 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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