USD/CHF strengthens above 0.9050 after Trump’s remarks on tariffs
- USD/CHF recovers to around 0.9070 in Wednesday’s early European session.
- Trump's plans for tariffs lift the USD broadly.
- The safe-haven flows could boost the CHF and create a headwind for USD/CHF.
The USD/CHF pair rebounds to around 0.9070, snapping the two-day losing streak during the early European trading hours on Wednesday. The uptick of the pair is bolstered by the stronger US Dollar (USD) broadly after US President Donald Trump said on Tuesday that he will impose tariffs and duties on trading partners.
Late Tuesday, Trump said that his team was discussing 25% tariffs against Canada and Mexico, as well as duties on China and the European Union. Trump added that the actions could take effect as early as February 1. “We’re talking about a tariff of 10% on China based on the fact that they’re sending fentanyl to Mexico and Canada,” said Trump. Analysts expect Trump’s administration could trigger inflationary pressures, potentially convincing the US Federal Reserve (Fed) to cut rates only once this year, supporting the USD.
The rising expectation that the Swiss National Bank (SNB) would continue to cut the interest rates might weigh on the Swiss Franc (CHF) against the USD. The rate has already been lowered to 0.5% due to concerns over inflation remaining below the SNB’s goal.
On the other hand, the ongoing geopolitical tensions between Russia and Ukraine could boost the safe-haven flows, benefiting the CHF. Ukraine launched a wave of drones into Russia, causing a fire at an oil storage and explosions at a plant producing military aircraft, the Ukrainian army said on Tuesday. Investors will also monitor the developments surrounding the ceasefire agreement and a hostage release deal between Israel and Hamas.
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.
