- The USD/CHF appreciated following the news that President Trump intends to direct federal agencies to review tariff policies.
- Traders speculate that Trump’s policies could lead to inflationary pressures, possibly restricting the Fed to just one more rate cut.
- The Swiss Franc remains generally weak as investors expect the Swiss National Bank to continue lowering interest rates.
USD/CHF remains firm after experiencing volatility, trading around 0.9070 during the Asian session on Tuesday. The US dollar saw volatility as President Donald Trump’s inauguration day caused a stir. However, the USD faced downward pressure as Trump appeared to strengthen his relationship with Chinese President Xi Jinping, with the TikTok deal and a potentially softer approach to tariffs contributing to the turnaround.
The US dollar (USD) regained ground following news that President Donald Trump intends to direct federal agencies to review tariff policies and evaluate US trade relations with Canada, Mexico and China.
The US Dollar Index (DXY), which tracks the performance of the US dollar against six major currencies, is trading around 108.30 after paring recent gains. The US Dollar receives downward pressure as US Treasury yields on 2-year and 10-year bonds remain subdued at 4.23% and 4.54%, respectively, at the time of writing.
According to the CME’s FedWatch tool, traders anticipate that the US Federal Reserve (Fed) will keep interest rates within the current range of 4.25%-4.50% during the next three monetary policy meetings. However, investors speculate that policies under the Trump administration could trigger inflationary pressures, potentially limiting the Fed to just one additional rate cut.
The Swiss Franc (CHF) remains broadly weak as investors anticipate that the Swiss National Bank (SNB) could continue to cut interest rates. Swiss interest rates have already been cut to 0.5% due to concerns about inflation remaining below the central bank’s target.
The traditionally safe haven Swiss franc (CHF) may face challenges as geopolitical tensions in the Middle East ease. Traders are closely watching developments related to a long-delayed ceasefire agreement and hostage release agreement between Israel and Hamas.
Swiss franc FAQs
The Swiss Franc (CHF) is the official currency of Switzerland. It is among the ten most traded currencies globally, reaching volumes that far exceed the size of the Swiss economy. Its value is determined by general market sentiment, the economic health of the country or measures 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 value of the franc, causing turbulence in the markets. Although the peg is no longer in force, the fortunes of the Swiss franc tend to be highly correlated with that of the euro due to the Swiss economy’s high dependence on the neighboring eurozone.
The Swiss Franc (CHF) is considered a safe haven asset, or a currency that investors tend to buy during times of market stress. This is due to the perception of Switzerland in the world: a stable economy, a strong export sector, large central bank reserves or a long-standing political stance towards neutrality in global conflicts make the country’s currency a good option for investors who shy away from risks. Turbulent times are likely to strengthen the value of CHF against other currencies that are considered riskier to invest in.
The Swiss National Bank (SNB) meets four times a year (once a 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 exceeds the target or is expected to exceed it in the foreseeable future, the bank will attempt to control price growth by raising its reference rate. Higher interest rates are usually 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 the CHF.
Macroeconomic data published in Switzerland is essential to assess the state of the economy and can affect the valuation of the Swiss Franc (CHF). The Swiss economy is broadly stable, but any sudden changes in economic growth, inflation, current account or central bank foreign exchange reserves have the potential to trigger moves in the CHF. In general, high economic growth, low unemployment and high confidence are good for the CHF. Conversely, if economic data points to weakening momentum, the CHF is likely to depreciate.
As a small, open economy, Switzerland relies heavily on the health of neighboring Eurozone economies. The European Union as a whole is Switzerland’s main economic partner and a key political ally, so the stability of macroeconomic and monetary policy in the eurozone is essential for Switzerland and, therefore, for the Swiss Franc (CHF). With such dependence, some models suggest that the correlation between the fortunes of the Euro (EUR) and the Swiss Franc is greater than 90%, or almost perfect.
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.
