FX Daily: Trive Bullish on USD/CHF
Tariff threats and a resilient US economy support the USD. Absent any major geopolitical developments, the CHF remains the preferred funding currency due to the SNB's dovish stance and low inflation environment.
USD: Tariffs
The USD has been on the softer side over the past week, partly due to improved risk sentiment, a slight boost from ceasefire discussions, and skepticism surrounding recent tariff announcements. Markets appear to be discounting the severity of the proposed tariffs, possibly calling Trump's bluff regarding their actual implementation. However, the broader outlook for the USD remains supported by a resilient economy, a hawkish FOMC, and the persistent risk posed by tariffs despite market doubts. Notably, Trump has indicated that he is likely to impose 25% tariffs on automobile, semiconductor, and pharmaceutical imports, with an announcement expected as soon as April 2. Additionally, Trump previously tasked the U.S. Commerce Department and Trade Representative with conducting a comprehensive review of trade deficits, which is due by April 1, suggesting he may be awaiting the official findings before taking further action. Another key event to watch is March 12, when Trump is set to implement an additional 25% tariff on steel and aluminum. In the absence of successful negotiations with U.S. trade partners securing exemptions before these deadlines, ongoing trade policy uncertainty is likely to remain a supportive factor for the USD until greater clarity emerges.
Domestically, the January FOMC minutes reinforced a clear message that the Fed is in no rush to cut rates again. Instead, policymakers seek confirmation that inflation is steadily returning to target and/or that labor market conditions are easing. The tone of the minutes was consistent with Chair Powell’s remarks and other Fed officials’ statements following the January FOMC meeting, adding little new information. Currently, markets anticipate only one rate cut from the FOMC this year, likely in the second half of 2025, which has provided further support for the USD, particularly against currencies of central banks leaning toward additional easing. Consequently, aside from policy uncertainty related to Trump’s trade stance, the divergence in monetary policy between the Fed and other central banks, coupled with economic resilience, continues to fundamentally support the USD.
Looking ahead, market attention will turn to the U.S. January PCE report, the Fed’s preferred measure of inflation. While the recently released January CPI and PPI figures came in hotter than expected, components linked to the PCE report from both releases showed signs of softening. A weaker-than-expected PCE reading would further reinforce the Fed’s current stance—that the disinflation process remains on track, but policymakers are in no rush to cut rates as they require more time to assess the broader inflation trajectory, which could be affected by potential tariffs. Meanwhile, markets will continue to monitor ceasefire negotiations between Russia and Ukraine, as well as any further developments in U.S. trade policy.
CHF: Funding currency
The baseline outlook for CHF remains bearish, primarily due to Switzerland’s subdued inflation environment, increasing market expectations of SNB rate cuts, and CHF’s structural shift back into a preferred funding currency. The SNB has signaled a dovish stance, with markets now pricing in rate cuts starting as early as March or June, reinforcing downward pressure on CHF. While speculation about a return to negative interest rates exists, the SNB is more likely to intervene in FX markets rather than reintroduce such measures in the near term.
Despite this bearish bias, upside risks remain, particularly from geopolitical uncertainties. CHF could see temporary strength if there are disruptions related to Germany’s February 23rd election, renewed escalation in the Russia-Ukraine conflict (especially regarding a ceasefire deal), or further trade tensions between the US and key global economies. Additionally, broader Eurozone fragility and a potential slowdown in China—Switzerland’s key trade partner—could further weigh on Swiss economic momentum, indirectly influencing CHF movements.
Looking ahead, with no major Swiss domestic data releases in focus, CHF will be primarily driven by external risks which discussed above. Barring a significant geopolitical shock, CHF is expected to remain one of the most attractive funding currencies throughout 2025, particularly as global risk appetite normalizes and investors seek higher-yielding alternatives.
USD/CHF 4H
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