USD/CHF edges up to near 0.7760 as investors look past US trade policy uncertainty
- USD/CHF trades marginally higher to near 0.7760 as the US Dollar regains ground.
- US President Trump threatens higher tariffs on countries if they don’t honour trade deals.
- Risk-off market sentiment has been keeping the Swiss Franc broadly on the front foot.
The USD/CHF pair ticks up to near 0.7760 during the Asian trading session on Tuesday. The Swiss Franc edges higher as the US Dollar (USD) extends late Monday’s recovery move, which was driven by the expectation that uncertainty inspired by the United States (US) Supreme Court’s (SC) ruling against President Donald Trump’s tariff policy would be short-lived.
During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 97.75.
On Friday, the US SC struck down President Trump’s tariff policy, stating that invoking rights under economic emergency law to back higher import duties is “unlawful”.
While market experts believe that Washington has many alternatives to offset the impact of SC’s ruling, which would keep tariffs afloat. "The markets' initial reaction to the ruling may ultimately be short-lived, given that multiple avenues can be pursued to keep tariffs in place," analysts at Invesco said.
In response, US President Trump has already announced 15% global tariffs and has warned countries that “playing games” with existing trade agreements could face steeper duties.
Meanwhile, the Swiss Franc (CHF) trades broadly calm due to risk-off market sentiment amid US trade policy uncertainty and tensions between the US and Iran. Negotiators from the US and Iran are scheduled to resume nuclear talks on Thursday.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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