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USD/CHF softens below 0.7750 as Swiss Franc strengthens amid tariff uncertainty

  • USD/CHF attracts some sellers to near 0.7725 in Monday’s early European session. 
  • The Swiss Franc strengthens against the US Dollar amid tariff uncertainty. 
  • Traders will closely monitor the developments surrounding the US-Iran talks on Thursday ahead of the US PPI report. 

The USD/CHF pair faces some selling pressure to around 0.7725 during the early European session on Monday. US President Donald Trump’s fresh tariff plans weigh on the Greenback against the Swiss Franc (CHF). Traders brace for the US January Producer Price Index (PPI) report on Friday for fresh impetus. 

The US Supreme Court struck down Trump's sweeping reciprocal tariffs on Friday. In response, the US President announced plans for a new 15% global import tariff, fueling concerns over a renewed trade war. 

“The dollar is enduring a broad-based decline as the market tries to assess implications from the court’s decision,” said Rodrigo Catril, strategist at National Australia Bank in Sydney. “Trump’s tariff regime is still in place with more uncertainty.”

Ongoing tensions between the US and Iran, including reports of potential limited airstrikes, boost the safe-haven flows, benefitting the CHF, and create a headwind for the pair. The New York Times reported on Sunday that Trump is considering launching limited airstrikes against Iran. 

Trump added that he might consider a far larger attack in the upcoming months if diplomacy or any initial targeted US attack fails to convince Iran to comply with his demands that it abandon its nuclear program. The US and Iran will hold their next round of negotiations in Geneva on Thursday. But Trump weighs options for US action if the negotiations fail. 

The release of the US January PPI data on Friday could offer some hints about the US interest rate path. If the report comes in hotter than expected, this would prompt traders to scale back expectations for interest rate cuts by the Federal Reserve (Fed), lifting the US Dollar (USD).

(This story was corrected on February 23 at 6:35 GMT to say that ongoing tensions between the US and Iran, including reports of potential limited airstrikes, boost the safe-haven flows, benefitting the CHF and create a headwind for the pair, not tailwind.)

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.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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