Franc Strengthens as Dollar Slips Amid Trade War Jitters and Swiss Growth Downgrade

The U.S. dollar weakened on Thursday, with the USD/CHF pair sliding around 0.20% to hover near 0.7950 after touching a two-week low of 0.7933. Investors sought refuge in the Swiss franc amid escalating trade tensions between Washington and Beijing, while Switzerland’s latest economic forecasts added a cautious tone to the market.

The renewed bout of risk aversion followed fresh remarks from U.S. President Donald Trump, who described the ongoing standoff with China as a “full-blown trade war” and hinted at imposing tariffs of up to 100% on Chinese goods. However, diplomatic efforts remain on the horizon, as a potential meeting between Trump and Chinese President Xi Jinping later this month in South Korea could revive hopes for extending the fragile trade truce — provided Beijing delays its new export restrictions.

Meanwhile, investors are almost fully convinced that the Federal Reserve will deliver additional interest rate cuts before year-end. Current market expectations point to a 97% probability of a 25-basis-point reduction in October and a strong likelihood of another move in December. Some Fed officials have signaled support for continued monetary easing, though they remain cautious about the pace of cuts should economic growth prove more resilient than anticipated.

Adding to market anxiety, the ongoing U.S. government shutdown has entered another stalemate, with the Senate failing repeatedly to pass a new spending bill. The White House has warned that more than 10,000 federal jobs could be at risk if the impasse continues, deepening concerns about the broader economic outlook and undermining confidence in fiscal stability.

Across the Atlantic, the Swiss State Secretariat for Economic Affairs (SECO) maintained its 2025 GDP growth forecast at 1.3% but downgraded its 2026 projection to 0.9%, citing the drag from U.S. tariffs and the persistent strength of the franc. With inflation expected to remain subdued — at just 0.2% in 2025 and 0.5% in 2026 — analysts believe the Swiss National Bank (SNB) will keep its cautious stance and avoid tightening policy anytime soon.

The combined effect of weaker U.S. data, political gridlock in Washington, and dimmer Swiss growth prospects has created a tug-of-war between safe-haven flows and interest rate expectations. For now, the franc continues to edge higher against most major peers, with traders betting that both the trade war and the policy uncertainty in the U.S. could keep global markets on edge through the final quarter of 2025.