Swiss Franc weakens on easing safe-haven demand, US tariffs

USD/CHF continues its winning streak for the seventh successive day, trading around 0.8190 during the European hours on Tuesday. The currency pair is appreciating as the Swiss Franc (CHF) weakens on easing safe-haven demand amid easing geopolitical tensions between the United States (US) and Iran alongside a sharp drop in crude oil prices.

Moreover, trade policy developments are creating broader market headwinds. The Trump administration has implemented double-digit tariffs on more than 60 countries, including Switzerland, though the levies remain capped within its previously announced 12.5% ceiling. To execute these measures, the administration invoked a legal justification that grants executive authority to impose import taxes and sanctions on nations deemed to be engaging in "unjustifiable," "unreasonable," or "discriminatory" trade practices.

Regarding monetary policy, the Swiss National Bank (SNB) is widely anticipated to hold its policy rate steady at 0% through 2027. While a return to negative interest rates remains a contingency option, it is not currently the baseline scenario. Supporting this neutral stance, Swiss inflation slowed to 0.5% in June and is projected to peak at just 0.8%—comfortably within the SNB's target range of 0% to 2%.

Additionally, the USD/CHF pair appreciates as the US Dollar (USD) holds ground amid market uncertainty ahead of the Federal Reserve’s (Fed) upcoming policy decision on Wednesday. Traders are navigating an unusual level of uncertainty, with the CME FedWatch Tool pricing in nearly a 38% chance of a July rate hike and an 81.4% probability of at least a 25-basis-point increase by September. Citadel Securities expects the Fed to deliver a rate increase to reinforce Chairman Kevin Warsh’s inflation-fighting credibility, aligning with his repeated commitments to restore price stability.