USD/CHF slumps below 0.8500 amid risk-off mood, Trump tariff fallout
- USD/CHF falls to near 0.8495 in Monday’s early European session.
- Risk-off mood and the fears of a deep economic downturn boost the Swiss Franc, a safe-haven currency.
- US NFP increased by 228K in March vs. 135K expected.
The USD/CHF pair attracts some sellers to around 0.8495 during the early European session on Monday. The Swiss Franc (CHF) strengthens against the US Dollar (USD) due to the safe-haven flows after the market panic caused by US President Donald Trump's sweeping tariffs deepened and increased worries of a global recession.
Investors are flocking to safe-haven assets after US President Donald Trump last week unveiled sweeping global tariffs on goods imported from most US trading partners The CHF has appreciated against the USD as traders consider the best options for cushioning the impact of Trump’s tariffs.
Furthermore, the persistent geopolitical tensions contribute to the CHF’s upside. The Kherson regional military administration Oleksandr Prokudin reported on Sunday that Russians shelled more than 30 localities in the Kherson region, including residential areas of Kherson. Seven people were wounded.
Data released by the Labor Department on Friday revealed that the US Nonfarm Payrolls (NFP) rose by 228K in March from the revised 117K in February. This reading came in stronger than the 135K expected. Meanwhile, the US Unemployment Rate rose to 4.2% in March versus 4.1% prior, higher than the 4.1% forecast. Average Hourly Earnings increased 0.3% MoM in March, in line with the market consensus.
Investors wagered that the mounting risk of a deep economic downturn could pave the way for the Federal Reserve (Fed) interest rate cut as early as May, which might drag the Greenback lower in the near term. However, the renewed US Dollar demand amid the oversold condition might help limit the pair’s losses for the time being.
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.