- The weakness of the US dollar increases demand for the Swiss Franco, considered safe refuge.
- The USD/CHF expands losses after Trump’s threat to impose a 50% tariff on EU imports, which would take effect on June 1.
- The torque of the Swiss Franco remains vulnerable as confidence in the dollar as a reserve currency decreases.
The Swiss Franco (CHF) continues to strengthen itself against the US dollar (USD) on Friday, with concerns about the health of the United States economy (USA) weighing on the dollar.
At the time of writing, the USD/CHF is quoted to 0.8224, lowering 0.81% in the day, and heading towards the minimum of May of 0.8186, which is a key support level.
The president of the United States (USA) Donald Trump threatened Friday with a 50% tariff to imports from the European Union (EU), which would enter into force on June 1. In a publication on social networks, Trump declared that the EU was “very difficult to treat” and that “our negotiations with them are not going anywhere.”
The renewed tariff threats have revived US capital outflows towards safe shelters such as gold and the Swiss Franco.
In the US, the decision of the House of Representatives to approve the controversial ‘A great bill’ on Thursday has generated significant concerns about fiscal policy and debt payments, underlining the seriousness of the situation.
In social networks, Trump said: “This is, without a doubt, the most significant bill that will be signed in the history of our country!”
However, the package is expected to add 3.8 billion dollars to the growing federal government debt of 36.2 billion dollars in the next decade. This will increase debt load and is considered negative for the economy.
With the speakers of the Federal Reserve (FED) continuing to provide comments on the expectations of the US economy, their statements play a fundamental role in the formation of expectations on interest rates.
Although higher interest rates are generally favorable for a currency, a more uncertain economic context continues to support the demand for alternative assets.
FAQS risk feeling
In the world of financial jargon, the two terms “appetite for risk (Risk-on)” and “risk aversion (risk-off)” refers to the level of risk that investors are willing to support during the reference period. In a “Risk-on” market, investors are optimistic about the future and are more willing to buy risk assets. In a “Risk-Off” market, investors begin to “go to the safe” because they are concerned about the future and, therefore, buy less risky assets that are more certain of providing profitability, even if it is relatively modest.
Normally, during periods of “appetite for risk”, stock markets rise, and most raw materials – except gold – are also revalued, since they benefit from positive growth prospects. The currencies of countries that are large exporters of raw materials are strengthened due to the increase in demand, and cryptocurrencies rise. In a market of “risk aversion”, the bonds go up -especially the main bonds of the state -, the gold shines and the refuge currencies such as the Japanese yen, the Swiss Franco and the US dollar benefit.
The Australian dollar (Aud), the Canadian dollar (CAD), the New Zealand dollar (NZD) and the minor currencies, such as the ruble (Rub) and the South African Rand (Tsar), tend to rise in the markets in which there is “appetite for risk.” This is because the economies of these currencies depend largely on exports of raw materials for their growth, and these tend to rise in price during periods of “appetite for risk.” This is because investors foresee a greater demand for raw materials in the future due to the increase in economic activity.
The main currencies that tend to rise during the periods of “risk aversion” are the US dollar (USD), the Japanese yen (JPY) and the Swiss Franco (CHF). The dollar, because it is the world reserve currency and because in times of crisis investors buy American public debt, which is considered safe because it is unlikely that the world’s largest economy between in suspension of payments. The Yen, for the increase in the demand for Japanese state bonds, since a great proportion is in the hands of national investors who probably do not get rid of them, not even in a crisis. The Swiss Franco, because the strict Swiss bank legislation offers investors greater protection of capital.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
