The currency pair is currently positioned in negative territory, hovering around 0.7730 in the early European session on Wednesday. The US Dollar shows a decline against the Swiss Franc following US President Donald Trump’s annual State of the Union address to Congress on Wednesday. Later on Friday, attention will turn to the Swiss Q4 Gross Domestic Product and the US January Producer Price Index reports. On Wednesday, Trump claimed he has achieved a significant turnaround and pointed out his economic successes, especially focusing on the decrease in inflation. He stated that his administration has implemented actions to tackle unlawful immigration and the surge of fentanyl at the border. The President of the United States stated that “one of the main reasons for the US economic turnaround is tariffs,” adding that the Supreme Court’s ruling on tariffs was “unfortunate.” Nonetheless, Trump proceeded to emphasise his new 15% global tariffs under section 122 of the Trade Act. He commented, “They’re somewhat more intricate, yet likely superior, paving the way for a solution that will be even more robust than previously.” The uncertainty surrounding US tariffs could lead to a decline in the value of the Greenback in the near future. Market participants will closely monitor the developing situation surrounding US-Iran tensions as nuclear discussions are scheduled for Thursday in Geneva.
On Monday, the US embassy in Lebanon carried out the evacuation of several staff members as a precautionary step in response to anticipated regional developments. Any signs of rising tensions between the US and Iran could increase safe-haven flows, thus strengthening the Swiss Franc. However, positive results from the nuclear talks could reduce geopolitical uncertainties and apply downward pressure on the CHF. The Swiss Franc serves as the official currency of Switzerland. This currency is among the top ten in global trading, with volumes that greatly exceed the size of the Swiss economy. The value is shaped by general market sentiment, the country’s economic situation, and measures implemented by the Swiss National Bank, along with several other elements. Between 2011 and 2015, the Swiss Franc held a stable exchange rate against the Euro. The peg was abruptly removed, resulting in a surge of more than 20% in the value of the Franc, which caused considerable market upheaval. Even without the peg, the fate of the CHF is still tightly connected to the Euro, highlighting the Swiss economy’s considerable dependence on the Eurozone.
The Swiss Franc is regarded as a safe-haven asset, a currency that investors typically acquire during periods of market turmoil. The perceived status of Switzerland in the global arena is a significant factor: its stable economy, robust export sector, substantial central bank reserves, and a long-standing political stance of neutrality in international conflicts contribute to making the country’s currency an appealing choice for investors looking for safety from risks. In uncertain times, it is likely that the value of CHF will increase compared to other currencies viewed as more risky. The central bank of Switzerland meets four times a year, which is less often than several other major central banks, to decide on its monetary policy approach. The bank aims for an annual inflation rate to stay under 2%. In situations where inflation goes beyond the target or is expected to do so soon, the central bank will aim to manage price rises by raising its policy rate. Higher interest rates typically benefit the Swiss currency by resulting in increased yields, thereby enhancing the country’s appeal to investors. On the other hand, lower interest rates typically result in a decline in the value of CHF. Macroeconomic data releases in Switzerland are essential for assessing the economic environment and can impact the value of the Swiss Franc.
The Swiss economy shows a consistent stability; however, sudden changes in economic growth, inflation, the current account, or the central bank’s currency reserves might result in variations in CHF. Generally, strong economic expansion, low joblessness, and high confidence levels are advantageous for the CHF. Conversely, if economic data suggests a slowdown, the CHF is anticipated to lose strength. Switzerland, known for its small and open economy, shows a considerable dependence on the economic stability of neighbouring Eurozone countries. Switzerland’s main economic partner is the European Union, which also plays a crucial role as a political ally. Therefore, stability in macroeconomic and monetary policies within the Eurozone is crucial for Switzerland and, consequently, for the currency. Due to this dependency, some models suggest that the relationship between the Euro and the CHF is over 90%, nearing a perfect correlation.