The Swiss franc (USDCHF: -1.5%) is leading the G10 currencies today as investors sell off U.S. dollars amid concerns over the U.S. economic downturn. The dollar is finding no support even from Jerome Powell’s hawkish stance. Despite direct pressure from Trump, Powell emphasized that the Fed can continue to wait before cutting interest rates, even in the face of the expected negative impact of the trade war on inflation and economic growth.
Over the past week, the dollar has weakened by nearly 4% against the franc. Source: xStation5
The shocking scale of retaliatory tariffs, persistent uncertainty, and escalating fears of a global recession all underscore the franc’s status as a “safe haven” currency, making it particularly attractive to forex investors.
On the flip side, the rapid appreciation of the franc poses a separate problem for the Swiss National Bank (SNB), which is running out of conventional tools to prevent the currency from becoming too strong. Interest rates in Switzerland are already the lowest among G10 countries (0.25%), and an expected cut to 0% in June could mark the beginning of a return to a more active SNB presence in the FX market.
Following negotiations, retaliatory tariffs on Switzerland may be reduced from 31% to 17% (Bloomberg), but an estimated 60% drop in demand for Swiss goods in the U.S. would equate to an almost 2% GDP loss for Switzerland. The economy is also particularly vulnerable to potential tariffs on the pharmaceutical sector (with leading comapanies like Roche and Novartis).
The franc’s appreciation is happening despite current conditions in the bond market, including pressure on the SNB to further cut rates and the Fed’s hawkish position. Source: XTB Research
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