- USD/CHF tumbles to near 0.8550 in Friday's early European session, losing 0.55% on the day.
- The economic uncertainty under fresh Trump’s tariff policy boosts the safe haven flows, supporting the Swiss Franc.
- The Swiss CPI rose by 0.3% YoY in March, softer than expected.
The USD/CHF pair attracts some sellers to around 0.8550 during the early European session on Friday, pressured by the weaker US Dollar (USD). The Swiss Franc (CHF) gathers strength against the Greenback amid an increased risk-off mood by investors. Investors will keep an eye on the US employment data from March, which is due later on Friday.
The markets flock to safe-haven assets in response to US President Donald Trump's unexpectedly aggressive tariffs on major trading partners. Trump's reciprocal tariff plans call for a 10% tariff on all US imports except those that comply with the US-Mexico-Canada Agreement. The Trump administration imposed a 31% levy on Swiss imports.
Nonetheless, the concerns over the economic slowdown in the United States on the tariff news and related further fall in US stocks continue to undermine the USD. Risks to the US economy were also seen in rising bets on Federal Reserve (Fed) interest rate reduction, which might contribute to the USD’s downside.
Short-term interest-rate futures are now pricing in nearly 70% odds of a Fed rate cut in the June meeting, up from about 60% before the tariffs were announced, according to the CME FedWatch tool.
On the Swiss front, the country’s Consumer Price Index (CPI) rose by 0.3% YoY in March, compared to an increase of 0.3% prior, the Swiss Federal Statistical Office reported on Thursday. This figure came in slightly below market forecasts of 0.5%. On a monthly basis, the CPI was flat, in line with the consensus and following a spike in February of 0.6%. Meanwhile, the CHF has benefited from the massive uncertainty in the financial markets and the ongoing geopolitical tensions.
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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