USD/CHF remains under pressure near 0.8950 as Swiss Franc strengthens on safe-haven demand
- USD/CHF loses ground as safe-haven demand increases amid rising concerns over a global tariff war.
- Canada’s Prime Minister’s Office announced plans to impose retaliatory 25% tariffs on US imports if US tariffs take effect.
- The US Dollar faced challenges due to optimism surrounding a potential Ukraine peace deal.
USD/CHF remains under pressure for the second consecutive day, hovering around 0.8960 during Tuesday’s Asian session. The pair may decline further as the safe-haven Swiss Franc (CHF) strengthens amid escalating risk-off sentiment driven by growing concerns over a global tariff war.
On Monday, the White House confirmed that President Trump signed an order raising tariffs on Chinese imports to 20%, while similar measures for Mexico and Canada are still pending. Trump also reiterated that reciprocal tariffs will take effect on April 2 for countries imposing duties on US goods.
In response, Canada’s Prime Minister’s Office stated that Canada will implement 25% retaliatory tariffs on US imports starting Tuesday if US tariffs proceed. Meanwhile, China’s Commerce Ministry announced early Tuesday that it would take "necessary countermeasures" to protect its legitimate rights and interests.
The US Dollar Index (DXY), which tracks the USD against six major currencies, has climbed to near 106.60. However, the Greenback faces downward pressure as optimism surrounding a potential Ukraine peace deal reduces demand for safe-haven assets. European leaders have voiced support for security guarantees for Ukraine, further boosting global risk sentiment.
US ISM Manufacturing PMI dipped to 50.3, falling short of expectations (50.5) and declining from January’s 50.9. Conversely, S&P Global’s final Manufacturing PMI for February exceeded forecasts at 52.7, improving from its preliminary estimate.
Investors now shift their focus to upcoming US labor market data, with the ADP employment report due on Wednesday and the Nonfarm Payrolls report on Friday, which could provide further insights into the Federal Reserve’s (Fed) interest rate outlook.
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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