USD/CHF holds positive ground above 0.9100 ahead of Fed Chair Powell’s testimony
- USD/CHF drifts higher to 0.9115 in Tuesday’s early European session.
- The threats of reciprocal tariffs and additional protectionist measures by Trump boost the US Dollar.
- The ongoing Middle East geopolitical tensions could boost the safe-haven currency like the CHF.
The USD/CHF pair trades in positive territory for the fourth consecutive day around 0.9115 on Tuesday during the early European trading hours. The threats of reciprocal tariffs and the imposition of 25% tariffs on aluminium and steel by US President Donald Trump provide some support to the US Dollar (USD). Investors will closely monitor Federal Reserve (Fed) Chair Jerome Powell’s semi-annual testimony on Tuesday.
Analysts believe that tariff policies by the Trump administration could be inflationary and put further pressure on the Fed to keep interest rates elevated. Markets are pricing in 36 basis points (bps) of cuts this year, down from 42 bps after an upbeat labour market report on Friday. This, in turn, underpins the Greenback against the Swiss Franc (CHF).
"It would not be prudent to fight this trend of US dollar strength, at least until later this year when we can have a better gauge of the breath and scope of the tariffs and the corresponding impact on the US economy," said United Overseas Bank (UOB) analysts.
On the other hand, global uncertainties and geopolitical tensions in the Middle East could drive safe-haven flows to the CHF. The Kremlin said on Monday that US-Russia relations were on the brink of collapse and refused to confirm whether Russian President Vladimir Putin had spoken with President Donald Trump, despite Trump saying so Sunday.
The Swiss Franc could trade stronger in the coming months as the Swiss National Bank (SNB) is unlikely to return to negative interest rates, Commerzbank analyst Michael Pfister said in a note. The SNB might end its rate-cutting cycle with a policy rate of 0.0%, compared with 0.5% currently.
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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