The USD/CHF pair fell 0.55% to close to 0.7985 during the late Asian trading session on Monday. The Swiss pair is facing intense selling pressure as tensions between the Eurozone and the United States over Washington’s desire to buy Greenland have weighed heavily on the US dollar.
At press time, the US Dollar Index (DXY), which tracks the value of the US currency against six major currencies, was down 0.25% near 99.15.
On Saturday, US President Donald Trump threatened to impose 10% tariffs on imports from several EU members, which include Denmark, Sweden, France, Germany, the Netherlands and Finland, along with Britain and Norway, which will take effect on February 1. Trump imposed additional tariffs on EU members, as they condemned US plans to “full and complete purchase” of Greenland.
EU members pledged a measured response against US President Trump’s tariff threats, with European Commission President Ursula von der Leyen warning in a post on the
Meanwhile, US-EU tensions over Greenland’s sovereignty have improved demand for the safe-haven Swiss franc (CHF), which has outperformed across the board.
This week, investors will pay close attention to speeches by global central bankers at the World Economic Forum (WEF) in Davos, starting on Tuesday. Swiss National Bank President Martin Schlegel is scheduled to speak at the World Economic Forum on Tuesday.
Frequently asked questions about the US dollar
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a large number of other countries where it is traded alongside local banknotes. It is the world’s most traded currency, accounting for more than 88% of total global forex trading volume, or an average of $6.6 trillion in transactions per day, according to 2022 data. After World War II, the US dollar took the place of the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement in 1971 when the gold standard disappeared.
The most important factor affecting the value of the US dollar is monetary policy, which is shaped by the Federal Reserve. The Fed has two missions: achieving price stability (controlling inflation) and promoting full employment. The basic tool for achieving these two goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, the Fed will raise interest rates, which helps the value of the US dollar. When the inflation rate falls below 2% or when the unemployment rate is very high, the Fed may cut interest rates, which affects the dollar.
In extreme cases, the Fed could also print more dollars and activate quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used when credit dries up because banks will not lend to each other (due to fear of the counterparty defaulting). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It has been the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy U.S. government bonds mostly from financial institutions. Quantitative easing usually leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding in new purchases. It is usually positive for the US dollar.
