USD/CHF drifts higher above 0.9050 on tariff worries after Trump’s Colombian threat
- USD/CHF gains traction to around 0.9065 in Monday’s early European session.
- A Trump threat of tariffs on Colombia lifts the USD.
- SNB’s Schlegel said it still has room to cut rates again and even take rates below 0% if inflation falls too far.
The USD/CHF pair trades in positive territory near 0.9065 during the early European session. The US Dollar (USD) edges higher as traders assess the impact of US President Donald Trump's tariff plans at the start of a week. On Wednesday, the US Federal Reserve (Fed) interest rate decision will be in the spotlight.
US President Donald Trump on Sunday imposed sweeping retaliatory measures on Colombia, including tariffs and sanctions, after the South American country refused to allow two military planes carrying deported migrants to land. However, the White House said on Monday that Colombia had agreed to accept military aircraft carrying deported migrants. The prospect of high tariffs on goods from countries including China, Canada, Mexico, and the Eurozone has fueled concerns about inflation, boosting US Treasury bond yields and the Greenback.
On the Swiss front, the ultra-dovish monetary policy guidance from the Swiss National Bank (SNB) could weigh on the Swiss Franc (CHF) and act as a tailwind for USD/CHF. The SNB Chairman Martin Schlegel said at the World Economic Forum (WEF) in Davos that the SNB “doesn’t like negative interest rates” but if we have to do it, “we will.” Meanwhile, any signs of escalating geopolitical risks in the Middle East and Russia-Ukraine conflicts could boost the safe-haven flows, benefitting the CHF.
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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