USD/CHF retreats from 0.7980 with investors wary about higher tariffs

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The US Dollar pulls back from 0.7980 and remains trapped within the last two weeks' range.
Trump's new tariff salvo hurt risk appetite and is underpinning demand for safe havens, such as the CHF.
Strong US Jobless Claims have curbed hopes of imminent Fed cuts, providing some support to the USD.

The US Dollar is trimming gains against the safe-haven Swiss Franc on Friday, as the increasing uncertainty about global trade and investors' concerns about the impact of higher tariffs in the US economy have crushed risk appetite.

The Greenbacks rebound from Thursday’s lows at 0.7920 have been capped at the 0.7980-0-7990 area on Friday, which leaves the pair trading sideways within a 100-pip trade below the 0.8000 psychological level.

US President Trump rattled markets late Wednesday, introducing 35% tariffs to Canada and announcing a new round of levies to trading partners, including the EU, which is currently in trade negotiations with US representatives.

Apart from that, Trump affirmed that blanket tariffs will be increased to 15% or 20% from the previous 10% rate. Market concerns of the impact of higher tariffs on the global trade outlook have hammered risk appetite, boosting demand for safe havens, such as the Swiss Franc.

In the US, Fed officials have illustrated the divergence within the committee, with Waller and Daly reiterating their call for interest rate cuts in the following months, while Mussalem held a more cautious view, observing that it is still early to assess the impact of interest rates.

Data released on Thursday endorsed the hawkish frog to the Federal Reserve, as the unexpected decline in Weekly Jobless Claims confirms the resilient labour market and trims hopes of imminent rate cuts.

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.