Key Moments
- USD/CHF extended its advance for a seventh straight session, trading near 0.8190 during European hours on Tuesday.
- Safe-haven demand for the Swiss Franc eased amid reduced geopolitical tensions between the US and Iran and a sharp decline in oil prices.
- Markets positioned for the Federal Reserve’s Wednesday meeting, with tools showing a nearly 38% chance of a July hike and an 81.4% probability of at least a 25-basis-point increase by September.
Safe-Haven Flows Reverse as Geopolitical Tensions Ease
USD/CHF continued to climb for the seventh consecutive session, with the pair trading around 0.8190 during European trading on Tuesday. The move reflected broad weakness in the Swiss Franc (CHF) as investors pulled back from safe-haven assets.
The shift in sentiment followed easing geopolitical tensions between the United States (US) and Iran, coinciding with a pronounced decline in crude oil prices. As risk appetite improved, demand for the traditionally defensive Swiss currency diminished, supporting further gains in the US Dollar (USD) against the Franc.
US Tariffs Add to Broader Market Headwinds
Beyond geopolitical developments, trade policy actions contributed to the current market backdrop. The Trump administration has applied double-digit tariffs on imports from more than 60 countries, including Switzerland. However, the measures remain constrained by the previously announced 12.5% cap on tariff rates.
To implement these tariffs, the administration relied on a legal framework that grants the executive branch authority to impose import duties and sanctions on countries viewed as engaging in “unjustifiable,” “unreasonable,” or “discriminatory” trade practices.
| Policy Element | Detail |
|---|---|
| Tariff scope | More than 60 countries, including Switzerland |
| Tariff level | Double-digit rates, capped at 12.5% |
| Legal basis | Executive authority targeting “unjustifiable,” “unreasonable,” or “discriminatory” trade practices |
SNB Seen on Hold as Inflation Remains Subdued
On the monetary policy front, the Swiss National Bank (SNB) is widely expected to keep its policy rate unchanged at 0% through 2027. While a return to negative interest rates remains a possible tool, it is not viewed as the central scenario.
The outlook is underpinned by contained price pressures. Swiss inflation slowed to 0.5% in June and is forecast to peak at just 0.8%, comfortably within the SNB’s 0% to 2% target band. This backdrop supports a neutral stance from policymakers and reduces pressure for imminent policy adjustments.
| Swiss Inflation and Policy Outlook | Figure / Assessment |
|---|---|
| Current policy rate | 0% |
| Rate outlook | Expected to remain at 0% through 2027 |
| June inflation | 0.5% |
| Projected inflation peak | 0.8% |
| SNB inflation target range | 0% to 2% |
Fed Expectations Support the US Dollar
USD/CHF also drew strength from a firm US Dollar as market participants positioned ahead of the Federal Reserve’s policy announcement scheduled for Wednesday. Traders faced an unusually high degree of uncertainty around the path of US interest rates.
According to pricing from the CME FedWatch Tool, markets assigned nearly a 38% probability to a rate increase in July and an 81.4% likelihood of at least a 25-basis-point hike by September. Citadel Securities anticipates that the Fed will raise rates in order to bolster Chairman Kevin Warsh’s credentials in combating inflation, in line with his repeated pledges to restore price stability.
| Fed Rate Expectations | Implied Probability |
|---|---|
| July rate hike | Nearly 38% |
| At least 25-bps hike by September | 81.4% |
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