- The US-China trade deal is taking shape, with Trump’s comments of a “done deal” lifting optimism.
- US Consumer inflation falls in May, easing Fed expectations and capping US Dollar gains on Wednesday.
- USD/CHF trades below 0.8200 with US Treasury Secretary Scott Bessent testifying on Trump’s tax bill ahead of the July 9 deadline.
The Swiss Franc (CHF) is receiving a slight boost against the US Dollar (USD) during the American session on Wednesday, with a weaker Greenback driving gains.
After the US inflation data showed signs of easing in May and the US-China trade negotiations moved closer to a formal agreement, concerns over US fiscal policy returned to the spotlight.
With USD/CHF trading below 0.8200 at the time of writing, the direction of the US Dollar is expected to continue driving prices for the remainder of the day.
US Treasury Secretary testifies before US House Ways
With US Treasury Secretary Scott Bessent testifying before the US House Ways and Means Committee today, US fiscal policy came into focus.
Concerns have been raised over the fiscal sustainability of extending tax cuts and implementing aggressive ‘revenge tax’ tariffs.
Questions were asked about foreign investment restrictions, cybersecurity vulnerabilities and potential economic retaliation abroad.
The hearing comes as lawmakers debate a controversial tax-cut and tariff package designed to extend key elements of the 2017 tax reforms and introduce new levies, dubbed the “revenge tax” on firms operating in jurisdictions with digital service or global minimum taxes.
While Bessent emphasized the package is a “fiscal bill, not a revenge bill,” the proposals carry broad implications for revenue sustainability, trade relations, and foreign investment.
US inflation falls in May, US-China tensions ease, but US Dollar strength remains limited
The market focus in the European session centered on the release of the Consumer Price Index (CPI) for May and the US-China trade talks held in London.
US President Trump confirmed that the US-China agreement was a “done deal”, boosting market sentiment.
The US Consumer Price Index (CPI) came in softer than expected on Wednesday. Headline inflation rose 2.4% YoY in May, slightly below the 2.5% forecast and up from April’s 2.3%.
The core CPI, which excludes food and energy, remained steady at 2.8%, missing expectations of a rise to 2.9%. On a monthly basis, the CPI increased by just 0.1%, undershooting the 0.2% estimate, while the core CPI also rose by 0.1%, sharply below the 0.3% forecast.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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