Swiss Franc Strengthens on Risk Aversion, Pressuring USD/CHF Near 0.7950

Key Moments

Safe-Haven Flows Boost Swiss Franc

USD/CHF fell for a second consecutive session, trading near 0.7970
during Tuesday’s Asian session. Investors sought the Swiss Franc (CHF)
as a safe haven amid heightened geopolitical risks and questions about
the Federal Reserve’s independence.

As risk sentiment deteriorated, demand for CHF rose. This shift weighed
on the US Dollar (USD) against the Swiss currency.

Geopolitical Tensions Centered on Iran

US President Donald Trump said on Sunday that Iran’s leadership had
contacted him to “negotiate” after he threatened military action in
response to anti-government protests. However, he cautioned that
“we may have to act before a meeting.”

These remarks highlighted persistent geopolitical tension, supporting
safe-haven demand for the Swiss Franc.

Fed Independence Concerns Add to Risk Aversion

Market anxiety rose further as questions emerged over Federal Reserve
independence. Demand for safe-haven CHF increased after federal
prosecutors threatened to indict Fed Chair Jerome Powell over his
congressional testimony on a building renovation. Powell called this
an attempt to pressure the central bank.

These developments added another layer of uncertainty, reinforcing CHF’s
appeal.

USD Supported Ahead of Key Inflation Data

Despite USD/CHF pressure, the pair may find support from the US Dollar
ahead of December Consumer Price Index (CPI) data, due later on Tuesday.
Investors expected the report to provide clarity on Fed policy.

Markets priced in two Fed rate cuts this year, starting in June.
However, an upside surprise in inflation could temper those expectations.

Recent labor data reinforced the dovish Fed narrative. December Nonfarm
Payrolls (NFP) fell below expectations, supporting views of an
accommodative Fed. According to CME Group’s FedWatch tool, futures
implied a 95% probability that the Fed will keep rates unchanged at its
January 27-28 meeting.

Understanding the Swiss Franc

Key Drivers of CHF

The Swiss Franc (CHF) is Switzerland’s official currency and ranks among
the top ten most traded currencies globally. Its value depends on market
sentiment, Switzerland’s economic strength, and the Swiss National Bank
(SNB), among other factors.

From 2011 to 2015, CHF was pegged to the Euro. When the peg was removed,
CHF surged more than 20%, causing market turbulence. Today, CHF remains
closely tied to the Euro due to Switzerland’s reliance on the Eurozone.

Why CHF Is Viewed as a Safe-Haven Currency

CHF is seen as a safe haven. Switzerland’s political neutrality, stable
economy, strong exports, and large central bank reserves make it attractive
during market stress. As a result, investors often flock to CHF when
riskier currencies decline.

Impact of SNB Policy on the Franc

The Swiss National Bank meets quarterly to set monetary policy. It targets
inflation below 2%. When inflation rises, the SNB may increase rates,
boosting CHF. Lower rates generally weigh on the currency.

Role of Swiss Economic Data

Swiss macroeconomic data influence CHF expectations. Growth, inflation,
the current account, and SNB reserves are closely watched. Strong data
supports CHF, while weaker readings can push it lower.

Influence of Eurozone Policy on CHF

Switzerland relies heavily on the Eurozone. Economic stability and predictable
policy in Europe are critical for CHF. Some models show a correlation
of more than 90% between the Euro and CHF, highlighting the close
connection between the two economies.