Geopolitical tensions strengthen the Swiss franc's appeal, with USD/CHF falling away from the 0.7900 level

The worsening global security situation is driving up the safe-haven value of the Swiss franc. After a two-day rally, the USD/CHF exchange rate retreated to around 0.7880 during Tuesday’s Asian session, reflecting investors’ cautious attitude toward risk assets. This trend is closely related to escalating conflicts in multiple regions—Moscow announced a change in negotiation stance due to attacks on Putin’s residence, Saudi Arabia’s airstrikes in Yemen continue to intensify, Iran declared a “full-scale war” against the US, Europe, and Israel, and Trump warned of further strikes if Iran reactivates its nuclear program. In this geopolitical vortex, the Swiss franc’s status as a traditional safe-haven currency is reinforced.

The US dollar faces pressure, with risk aversion dominating the market

The weak performance of the US dollar has become another driver of the USD/CHF decline. Market expectations of further rate cuts by the Federal Reserve in 2026 continue to weigh on the dollar. According to the latest data from CME FedWatch Tool, the probability of the Fed holding rates steady in January is 83.9%, up from 80.1% a week ago. Meanwhile, the expectation of a 25 basis point rate cut has decreased from 19.9% to 16.1%, indicating waning market confidence in the dollar’s appreciation potential. Against this macro backdrop, investors are more inclined to hold currencies that can withstand risk, and the Swiss franc is precisely such a choice.

Economic data and central bank policy outlooks become key focus points

On the Swiss side, the KOF leading indicator will be a focus of subsequent attention, as it can forecast the future direction of overall economic activity. Additionally, the release of the Federal Reserve’s December policy meeting minutes is expected to provide market participants with in-depth insights into the 2026 policy outlook. US initial jobless claims data will be released on Wednesday, helping traders assess the true state of the US labor market.

The safe-haven attributes and market position of the Swiss franc

To understand the current trend of USD/CHF, it is essential to recognize the unique nature of the Swiss franc itself. The Swiss franc is one of the top ten most actively traded currencies globally, with trading volume far exceeding the size of the Swiss economy, reflecting widespread market recognition of its safe-haven status.

Switzerland is regarded as a safe destination due to its unique institutional advantages: a stable economic foundation, a strong export sector, substantial central bank reserves, and decades of neutrality policy during global conflicts. These factors lead investors to buy Swiss francs during periods of market stress. When global uncertainty rises, the CHF typically appreciates relative to other currencies perceived as riskier.

The Swiss National Bank’s policy framework

The Swiss National Bank (SNB) holds policy meetings quarterly, far less frequently than other major central banks. The SNB’s core goal is to keep annual inflation below 2%. When inflation exceeds the target or is expected to do so, the central bank tends to raise the benchmark interest rate to curb price increases. Higher interest rates generally benefit the Swiss franc by increasing returns on holding the currency and attracting more international capital inflows. Conversely, a rate-cut cycle often weakens the Swiss franc.

The impact of economic data and euro-related correlations

While the Swiss economy remains generally stable, any sharp fluctuations in economic growth, inflation levels, current account balances, or central bank reserves can trigger movements in the Swiss franc. Generally, strong economic growth, low unemployment, and high consumer confidence are favorable for the Swiss franc, while deteriorating economic data can lead to depreciation.

It is particularly important to note that as a small open economy, Switzerland’s fate is closely linked to the economic health of neighboring Eurozone countries. The EU is Switzerland’s most important economic partner and political ally, and the macroeconomic and monetary policy stability of the Eurozone is crucial for Switzerland. Historical data shows that the correlation between the euro and the Swiss franc exceeds 90%, approaching a near-perfect positive correlation. This means that policy movements in the Eurozone often directly influence the USD/CHF exchange rate.

Currently, the technical outlook for USD/CHF remains under pressure, with weak fundamentals and geopolitical risk premiums pushing the pair lower. Multiple factors together keep the Swiss franc relatively strong against the dollar. Investors should continue to monitor Federal Reserve policy signals, Swiss economic data, and the evolving global risk sentiment.