USD/CHF weakens below 0.8850 amid geopolitical tensions
- USD/CHF loses traction to near 0.8830 in Tuesday’s early European session.
- Trump said he may give some countries breaks on reciprocal tariffs.
- Middle East geopolitical tensions could boost the safe-haven flows, supporting the CHF.
The USD/CHF pair weakens to around 0.8830 during the Asian trading hours on Tuesday, pressured by a decline in the US Dollar (USD). Traders will keep an eye on the US Conference Board’s Consumer Confidence gauge, New Home Sales and the Richmond Fed Manufacturing Index, which will be released later on Tuesday.
Data released by the S&P Global on Monday showed that the US Composite PMI rose to 53.5 (preliminary) in March from 51.6 in February. Meanwhile, the Manufacturing PMI dropped to 49.8 in March versus 52.7 prior, missing the estimation of 51.9. The Services PMI improved to 54.3 in March from 51.0 in February, above the market consensus of 51.2. The mixed US PMI reports have failed to boost the Greenback.
President Donald Trump said not all of his threatened levies would be imposed on April 2. Trump signaled that some trading partners would receive possible exemptions or reductions. The uncertainty surrounding the Trump tariff policies could weigh on the Greenback against the Swiss Franc (CHF).
Meanwhile, the rising geopolitical tensions in the Middle East could boost the safe-haven flows, benefiting the CHF. Israel continues to carry out airstrikes in Gaza, ending a nearly two-month ceasefire with Hamas. Israeli Prime Minister Benjamin Netanyahu vowed to act "with increasing military strength" to free hostages and disarm Hamas.
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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