USD/CHF declines as geopolitical strains rise and the Fed remains under observation

USD/CHF Slides as Swiss Franc Gains Strength Amid Global Uncertainty

As of Monday, USD/CHF hovers near 0.7970, marking a 0.55% decline for the day after ending a four-session rally. The currency pair is under pressure due to a robust Swiss Franc, which is attracting safe-haven flows as investors react to escalating geopolitical and political tensions worldwide.

The Swiss Franc’s appeal has grown as market participants seek to minimize exposure to riskier assets. Ongoing unrest in the Middle East continues to unsettle investors, particularly after US President Donald Trump issued warnings to Tehran regarding the use of force against demonstrators, suggesting possible intervention if the situation worsens. In response, Iranian authorities cautioned against any involvement from the United States or Israel, further intensifying risk-off sentiment across global markets.

Meanwhile, Europe faces its own set of uncertainties. Talks about boosting military activity in Greenland have surfaced, with both the United Kingdom and Germany considering a greater presence in the Arctic. Berlin may propose a collaborative NATO operation, while UK Prime Minister Keir Starmer has called on allies to increase their efforts in the region. These discussions come as Donald Trump renews calls for US control over Greenland, adding to the geopolitical complexity.

On the monetary policy side, expectations regarding the Swiss National Bank (SNB) are also lending support to the Franc. Swiss inflation inched up to 0.1% year-on-year in December, the first uptick since July, though it remains at the lower end of the SNB’s 0%-2% target range. This modest rise in inflation suggests the central bank is likely to maintain its policy rate at 0% for the foreseeable future, with gradual increases in inflation anticipated as the economy recovers.

Conversely, the US Dollar is under pressure due to negative political and institutional developments. Market sentiment has turned cautious following news that federal prosecutors have launched a criminal investigation into Federal Reserve Chair Jerome Powell. The inquiry reportedly centers on renovations at the Fed’s Washington headquarters and whether Powell may have misled Congress, reigniting concerns about the central bank’s autonomy.

Additional headwinds for the Greenback stem from expectations of further interest rate reductions in the US. Recent employment figures have reinforced this outlook, as job growth in December fell short of projections. Nonfarm Payrolls increased by 50,000, down from 56,000 previously and below the anticipated 60,000, despite a slight dip in the unemployment rate to 4.4%. These factors have strengthened the case for more monetary easing, putting further downward pressure on the US Dollar and keeping USD/CHF below the key 0.8000 threshold.