USD/CHF stalls below 0.8000 with trade tariffs hurting risk appetite
- -The US Dollar recovery halts below 0.8000 amid a cautious market mood.
- Uncertainty about the global trade outlook is underpinning the safe-haven Swissy,
- The USD/CHF broader bearish trend remains in play with the US Dollar depreciating about 6% from mid May.
The US Dollar recovery from long-term lows, at 0.7870, has stalled on Tuesday right below the 0.8000 psychological level. The pair is trading with moderate losses on Tuesday, moving around the 0.7980 level, with the safe-haven Swiss Franc underpinned by the growing uncertainty about global trade.
Trump sent a first batch of tariff letters on Monday, reestablishing the levels announced on April 2 to Japan and South Korea, among other Asian partners. The US president also delayed the deadline to August one and maintained the door open to adjustments if a trade deal is reached in the meantime.
The “firm, but not 100% firm tariff policy”, as stated by the US President, highlights the US administration's erratic stance on international trade, and leaves investors wondering which tariffs and from which time will be implemented, with risk appetite subdued.
Against this backdrop and in the absence of key macroeconomic figures to divert the market focus, safe-haven assets, such as the CHF, are holding the upper hand. The USD/CHF is trading with moderate losses within Monday’s range, with the bearish trend intact, as the pair remains nearly 6% below mid-May highs and about 12% down on the year so far.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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