The ongoing trade conflict is making things increasingly difficult for Switzerland. On Thursday night, the US President announced on social media that a 100% tariff would apply to branded or patented medicines starting tomorrow. This will likely hit Switzerland hard, as the impact of the 39% tariffs has so far been cushioned by exemptions for pharmaceutical products, and the White House emphasised on Friday that the EU is exempt from these tariffs in view of the trade deal. However, the announcement leaves many questions unanswered. Companies are exempt from the tariffs as long as they manufacture in the US. However, this is not precisely defined, and most large companies manufacture at least some of their products in the US, Commerzbank's FX analyst Michael Pfister notes.

SNB lacks the means to weaken the franc

"The tariffs are likely to increase pressure on the Swiss government to reach a deal with the US, even though this is likely becoming more costly by the day. Yesterday, reports emerged that the government had offered to invest in the US gold refining industry, effectively meaning that part of the Swiss gold processing value chain would be relocated to the US. This is another step in the challenging process of persuading the US government, through concessions, to reduce tariffs to a level similar to that of the EU. We have reported on these efforts several times, but observers are increasingly getting the impression that the US government's ideas are becoming more and more unrealistic."

"Finally, Switzerland and the US issued a joint statement yesterday, agreeing to refrain from foreign exchange market interventions for competitive purposes. Although the SNB was granted the right to continue using foreign exchange market interventions as an important monetary policy instrument, this is likely to pose another obstacle to significant interventions aimed at weakening the Swiss franc. As in the past five quarters, such interventions are therefore likely to remain limited in the future."

"And the franc? It depreciated slightly against the euro yesterday, only to recover some of these losses in the afternoon. This is hardly a significant move. It seems as if the foreign exchange market has become somewhat numb to these news. Nevertheless, decision-makers at the SNB are probably hoping that there won't be a major global crisis in the near future that would cause the franc to appreciate significantly. With limited scope for interest rate cuts and interventions, the SNB lacks the means to weaken the franc."