- USD/CHF edges higher to near 0.8845 in Wednesday’s early European session.
- Trump prepares to unveil reciprocal tariffs as markets brace amid trade war fears.
- Trade war fears and geopolitical risks could boost safe-haven currencies like the Swiss Franc and cap the pair’s upside.
The USD/CHF pair strengthens to around 0.8845 during the early European session on Wednesday. The US Dollar (USD) edges higher as traders await details of US President Donald Trump's tariff plans later on Wednesday that could set the tone for markets in the near term. Traders will monitor the US March ADP Employment Change data, which is due later on Wednesday.
Trump said that he will impose reciprocal tariffs on Wednesday, suggesting that many countries with their own duties on US goods could suddenly face new trade barriers. The White House stated that Trump’s forthcoming tariffs will take effect right after they are unveiled on Wednesday.
Data released by the Institute for Supply Management (ISM) by the US Manufacturing Purchasing Managers Index (PMI) declined to 49.0 in March from 50.3 in February. This figure came in below the market consensus of 49.5. The weaker US economic data could undermine the Greenback.
On the Swiss front, risks of a global trade war, uncertainties, and ongoing geopolitical tensions could boost the safe-haven flows, supporting the Swiss Franc (CHF). Trump threatened Iran over the weekend with bombing and secondary tariffs if Tehran did not come to an agreement with Washington over its nuclear program.
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.
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