USD/CHF strengthens above 0.7950 amid confusion over tariff policies
- USD/CHF attracts some buyers to near 0.7975 in Wednesday’s early European session.
- Trump said a 50% tariff on copper imports is coming and threatened levies on pharmaceuticals.
- The release of the FOMC Minutes will take center stage later on Wednesday.
The USD/CHF pair gathers strength around 0.7975 during the early European session on Wednesday, bolstered by a firmer US Dollar (USD). However, the concerns about renewed trade tensions triggered by US President Donald Trump might cap the upside for the pair. All eyes will be on the FOMC Minutes, which will be published later on Wednesday.
Trump said late Tuesday that he would offer no additional extension on the country-specific tariffs, despite the previous day allowing that he was “not 100% firm” on his August 1 deadline. Furthermore, Trump indicated that he could announce substantial new rates on imports of copper and pharmaceuticals.
The lingering threat to inflation from tariffs might convince the US Fed to hold off on cutting interest rates until next year, which underpins the Greenback against the Swiss Franc (CHF). The markets are now anticipating 50 basis points (bps) worth of Fed rate reductions by the end of this year, starting in October.
The conflict in Gaza continues, with dozens of Palestinians killed as Israel unleashes further deadly attacks. Meanwhile, Israeli Prime Minister Benjamin Netanyahu is visiting Washington and has met with Trump at the White House. There is speculation that progress could be made toward a ceasefire. Nonetheless, any signs of escalating geopolitical tensions in the region could boost the safe-haven flows, supporting the CHF.
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
FXStreet
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.
