USD/CHF strengthens to near 0.8100 amid US-Swiss trade tensions
- USD/CHF gathers strength to around 0.8090 in Tuesday’s early European session.
- Swiss goods face a 39% US import tariff from August 7, weighing on the Swiss Franc.
- Soft US NFP report fueled speculations that the Fed will resume rate cuts in September.
The USD/CHF pair trades in positive territory around 0.8090 during the early European session on Tuesday. The Swiss Franc (CHF) softens against the Greenback after US President Donald Trump hit Switzerland with a shock 39% export tariff. However, rising September Federal Reserve (Fed) rate cut bets might cap the upside for the pair. The US July ISM Services Purchasing Managers Index (PMI) data will be in the spotlight later on Tuesday.
Trump will impose a 39% tariff on imports from Switzerland, one of the highest levies globally, which threatens to leave the country’s key exports reeling. The Swiss government said on Monday that the country is ready to make a "more attractive offer" in trade talks with Washington. It is unclear if Switzerland and the US will strike a trade agreement ahead of the deadline. This, in turn, exerts some selling pressure on the Swiss Franc (CHF) and creates a tailwind for the pair.
Friday's weaker-than-expected US Nonfarm Payrolls (NFP) report pointed to a cooling labor market and fueled speculations that the Fed will resume its rate-cutting cycle in September. Financial markets are now pricing in nearly an 84% chance that the Fed will reduce rates by 25 basis points (bps) in the September meeting, according to the CME FedWatch tool.
San Francisco Fed President Mary C. Daly said on Monday that, given mounting evidence that the US job market is softening and no signs of persistent tariff-driven inflation, the time is nearing for interest rate reductions. The downbeat US job data and dovish remarks from the Fed officials could undermine the Greenback against the Swiss Franc (CHF) in the near term.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.