USD/CHF holds losses near 0.8050 as traders expect a Fed rate cut at upcoming meeting
- USD/CHF depreciates as the US Dollar struggles amid an ongoing dovish tone over the Fed policy outlook.
- Traders remain cautious ahead of President Trump’s upcoming trade deadline on Friday.
- The Swiss Franc weakened ahead of the 39% US tariff on Swiss goods, set to take effect on August 7.
USD/CHF edges lower after two days of gains, trading around 0.8070 during the Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) weakens due to prevailing dovish sentiment surrounding the US Federal Reserve (Fed) policy outlook. Traders will likely observe the speeches from the Federal Reserve (Fed) policymakers later in the day, including Susan Collins, Lisa Cook, and Mary Daly.
The US Federal Reserve (Fed) is expected to deliver a 25 basis point rate cut in September, following weaker labor market data that has heightened concerns over the US economic outlook. Markets continued to reflect over a 90% probability of a Fed rate cut in September, with roughly 60 basis points of total easing expected by year-end.
Traders adopt caution ahead of US President Donald Trump's latest trade deadline on Friday, when a fresh round of high tariffs will go into effect on multiple nations unless last-minute deals are reached to negotiate lower levies. Trump also threatened to impose tariffs of up to 250% on pharmaceutical imports and potential levies on semiconductors.
On Tuesday, Trump announced that he will appoint the Fed’s Chair and Kugler’s replacement by the end of the week. He confirmed his choices for Chairman, including White House economic adviser Kevin Hassett, former Fed governor Kevin Warsh, and two other people. Trump also confirmed that Treasury Secretary Scott Bessent is not his choice for the Fed’s Chair.
The downside of the USD/CHF pair could be restrained as the Swiss Franc (CHF) struggles due to rising concerns about the impact of US tariffs on Swiss exports. The Trump administration announced a 39% tariff on Swiss goods, an increase from the 31% rate introduced in April, taking effect on August 7.
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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