The Swiss franc (CHF) attracted novel buyers against the US dollar (USD) on Monday as tensions escalated between the United States (US) and the European Union (EU) over Greenland’s need for support for the safe-haven franc. At the time of writing, the USD/CHF rate was trading around 0.7975, down almost 0.70% on the day.
Over the weekend, US President Donald Trump posted on Truth Social that a 10% tariff would be imposed on eight European countries, including Denmark, Germany, France, the UK, Sweden, Norway, the Netherlands and Finland, from February 1, adding that it would raise to 25% in June unless and until “an agreement is reached on the complete and complete purchase of Greenland.”
The statement renewed fears of a wider trade conflict and was met with acute criticism from European leaders, who warned of possible retaliatory measures. Trump has repeatedly argued that Greenland is of strategic importance to the United States and its national security, claiming that China and Russia want to have influence over the territory and claiming that Denmark can do “nothing” about it.
Against this backdrop, investor confidence in the dollar as a haven has declined as Trump’s repeated employ of tariffs as a political weapon continues to raise uncertainty around the US economy.
The US Dollar Index (DXY), which tracks the value of the dollar against a basket of six major currencies, is trading at around 99.11, down more than 0.20%.
Looking ahead this week, US markets are closed on Monday for Martin Luther King Jr. Day. Attention then turns to Thursday’s delayed personal consumption expenditure (PCE) inflation reports and the annual Gross Domestic Product (GDP) release for the third quarter. On Friday, the focus will be on preliminary S&P Global PMI surveys and consumer sentiment data from the University of Michigan.
In Switzerland, traders are waiting for producer and import prices on Tuesday to gain novel insight into domestic inflation pressures.
Markets will also pay attention to the World Economic Forum in Davos, where the president of the Swiss National Bank (SNB), Martin Schlegel, is scheduled to speak on Tuesday. US President Donald Trump is expected to deliver a speech at the forum, focusing on trade and geopolitical risks. Any novel headlines about tariffs, Greenland or US-EU relations will likely support currency flows into the CHF as a protected haven.
Frequently asked questions about the Swiss franc
The Swiss franc (CHF) is the official currency of Switzerland. It is among the top ten most frequently traded currencies in the world, reaching volumes far exceeding the size of the Swiss economy. Its value is determined, among others, by broad market sentiment, the economic condition of the country and the actions taken by the Swiss National Bank (SNB). From 2011 to 2015, the Swiss franc was pegged to the euro (EUR). The link was abruptly removed, causing the value of the franc to raise by more than 20% and causing confusion in the markets. Although this link no longer applies, the fortunes of the CHF are usually highly correlated with euro rates due to the Swiss economy’s hefty dependence on the neighboring eurozone.
The Swiss franc (CHF) is considered a protected asset, i.e. a currency that investors willingly buy during periods of market stress. This is due to Switzerland’s perceived status in the world: a stable economy, a robust export sector, enormous central bank reserves and a long-standing political stance towards neutrality in global conflicts make this country’s currency a good choice for investors escaping risk. Turbulent times are likely to strengthen the value of the CHF relative to other currencies that are perceived as riskier to invest in.
The Swiss National Bank (SNB) meets four times a year – once a quarter, less frequently than other major central banks – to decide on monetary policy. The bank aims for annual inflation below 2%. If inflation is above target or remains above target for the foreseeable future, the bank will attempt to limit price increases by raising the policy rate. Higher interest rates are generally positive for the Swiss franc (CHF) because they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the CHF.
Macroeconomic data publications in Switzerland are crucial for assessing the state of the economy and may affect the valuation of the Swiss franc (CHF). The Swiss economy is generally stable, but any sudden change in economic growth, inflation, the current account or the central bank’s foreign exchange reserves could trigger changes in the CHF. Overall, high economic growth, low unemployment and high levels of confidence are good for CHF. Conversely, if economic data indicate weakening dynamics, CHF will likely depreciate.
As a diminutive and open economy, Switzerland is largely dependent on the health of the economies of neighboring eurozone countries. The broadly understood European Union is Switzerland’s main economic partner and a key political ally, therefore the stability of macroeconomic and monetary policy in the euro zone is crucial for Switzerland, and therefore for the Swiss franc (CHF). With such a relationship, some models suggest that the correlation between the fate of the euro (EUR) and CHF is over 90%, which is close to ideal.
