USD/CHF advances beyond 0.7970 with US tariffs boosting risk aversion
- The US Dollar regains its safe-haven status and rallies across the board on risk aversion.
- Uncertainty about US trade tariffs and their deadline keeps investors on their toes.
- The minutes of the last Fed meeting are likely to challenge US Dollar's recovery later this week.
The US Dollar and the Swiss Franc are the best performers among major currencies on Monday, as investors rush for safety, anxious that Trump’s tariffs will cause a significant disruption in global trade.
Between them, however, the Dollar is showing a mild advantage. The USD/CHF advances to levels right above 0.7970, yet still below the 0.8000 psychological level and less than 100 pips above the 14-year low, at 0.7875, hit last week.
The US president announced over the weekend that he will send letters to some countries specifying the tariffs that will be applied to their products, but did not clarify to which countries or when those levies come into effect, as Treasury Secretary Beseent flagged a deadline extension, from the original July 9 to August 1.
The Grenback is acting as a safe-haven on Monday, but it is unclear whether these dynamics will be sustained. Fears about higher tariffs have been hammering the US Dollar during previous months as traders weigh risks that a negative impact on growth and upside risks to inflation stemming from higher costs for imported products. might lead to a stagflationary context.
These fears, however, seem to have faded, at least for now, as a strong US Nonfarm Payrolls report released last week restored confidence in the US economic momentum and curbed expectations of any imminent rate cut by the Federal Reserve.
Later this week, the minutes of the Fed’s last monetary policy meeting are likely to challenge the US Dollar's recovery. Some voices within the committee have been calling for an easier monetary policy, and the minutes might reflect those discrepancies. If that is the case, they might act as a headwind for USD’s recovery.
Swiss economy FAQs
Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.
Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.
As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.
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