USD/CHF weakens to near 0.8800 amid tariff worries

USD/CHF tumbles to around 0.8800 in Tuesday’s early European session.
Concerns over a global trade war boost the safe-haven flows, supporting the Swiss Franc.
The US CPI inflation data will be the highlight on Wednesday.

The USD/CHF pair attracts some sellers to near 0.8800 during the early European session on Tuesday. Probable US economic slowdown and continued policy uncertainty surrounding the Trump administration's trade policy exert some selling pressure on the US Dollar (USD). Investors will closely monitor the US Consumer Price Index (CPI) inflation report, which is due on Wednesday.

Fears about a tariff-driven slowdown in US growth have rattled US stocks and the USD. “The market is unsure whether fading U.S. exceptionalism will continue to hurt the dollar or whether the dollar benefits from its safe-haven status,” said Bank of Singapore strategist Sim Moh Siong. Nonetheless, analysts believe that the extended downside for stock markets may lead to a safe-haven currency like the Swiss Franc (CHF).

Risk-averse investors have sought the Swiss Franc sending the pair to multi-month highs against the Greenback. Additionally, the rising bets that the Federal Reserve (Fed) will cut the additional interest rate could undermine the USD. Traders are pricing in 75 basis points of cuts from the Fed this year, LSEG data showed, with a rate cut fully priced in for June.

The US CPI report for February will be in the spotlight on Friday, which might offer some hints about the inflation trajectory in the US. The headline CPI inflation is expected to cool down in February after accelerated in January.

Swiss Franc FAQs

What key factors drive the Swiss Franc?

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.

Why is the Swiss Franc considered a safe-haven currency?

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.

How do decisions of the Swiss National Bank impact the Swiss Franc?

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.

How does economic data influence the value of the Swiss Franc?

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.

How does the Eurozone monetary policy affect the Swiss Franc?

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.