USD/CHF rises to near 0.9050 as US Dollar advances due to tariff threats from Trump
|- USD/CHF appreciates as Trump announced plans to impose tariffs on imports of multiple products.
- Trump stated that he "wants tariffs 'much bigger' than 2.5%," the rate proposed by Treasury Secretary Scott Bessent.
- SNB’s Schlegel said that while the central bank does not support negative interest rates, it cannot completely rule them out.
USD/CHF recovers its recent losses from the previous two sessions, trading around 0.9050 during the Asian hours on Tuesday. The upside of the pair could be attributed to the improved US Dollar (USD) following tariff threats made by US President Donald Trump.
Trump announced plans on Monday evening to impose tariffs on imports of computer chips, pharmaceuticals, steel, aluminum, and copper. The goal is to shift production to the United States (US) and bolster domestic manufacturing.
Additionally, Scott Bessent, the Treasury Secretary under Trump, stated that he aims to introduce new universal tariffs on US imports, starting at 2.5%. These tariffs could rise to as much as 20%, reflecting Trump’s aggressive stance on trade policies, consistent with his campaign rhetoric last year.
However, President Trump told reporters aboard Air Force One early Tuesday that he “wants tariffs ‘much bigger’ than 2.5%,” as proposed by Treasury Secretary Scott Bessent. However, Trump noted that he has not yet decided on the specific tariff levels.
The US Dollar gained strength amid uncertainty regarding the impact of Trump's trade and immigration policies. This backdrop may encourage the Federal Reserve (Fed) to maintain a cautious stance at Wednesday’s policy decision.
The USD/CHF pair’s upside potential is bolstered by the weaker Swiss Franc (CHF) amid ultra-dovish monetary policy guidance from the Swiss National Bank (SNB). Swiss National Bank (SNB) Chairman Martin Schlegel, in an interview on Monday, stated that while the Bank does not support negative interest rates, it cannot entirely dismiss the possibility. Schlegel made these remarks during a conversation with broadcaster SRF.
In recent weeks, Schlegel has repeatedly highlighted the potential for negative rates, especially as Swiss inflation dropped to 0.6% in December, sparking concerns about deflation.
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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