The Swiss franc may see a minor increase if Switzerland can secure a trade agreement with the United States before the looming deadline on Thursday, as suggested by Commerzbank.
Switzerland risks a 39% tariff on its exports to the U.S. without a deal. Commerzbank anticipates Swiss authorities will propose a “considerably improved offer” to prevent this situation.
Prediction of Trade Agreement Costs
They predict that, though an expensive agreement will likely be made, it will now cost more than initially expected. Such a resolution is expected to support the franc and maintain the EUR/CHF rate around 0.9300.
If trade tensions escalate and no agreement is reached, the franc could experience increased pressure. The situation is under close scrutiny as the deadline nears, affecting not just Swiss exporters but also broader currency movements across Europe.
With the deadline just two days away on Thursday, August 7th, we are watching for a potential last-minute trade agreement between Switzerland and the United States. A 39% tariff on Swiss exports is on the table, creating significant uncertainty. This tension has been a key driver of the franc’s movement over the past month.
Considering the United States is Switzerland’s single largest export market, accounting for over CHF 65 billion in goods last year, we believe Swiss officials will do what is necessary to secure a deal. The economic cost of failing to reach an agreement is simply too high to ignore. Therefore, we expect an improved offer from Switzerland to materialize before the deadline.
Impact on Currency and Trading Strategies
For traders, this means we should anticipate a slight rebound for the Swiss franc this week. The currency has been under pressure, with USD/CHF climbing nearly 2% in the past three weeks to its current level around 0.9050. An agreement would likely reverse some of those recent losses and bring the pair back down.
One way to position for this is through short-term call options on the franc, which would profit from a sudden appreciation. Implied volatility for August options has spiked over 15% in recent days, reflecting the market’s anxiety. This indicates that while options are expensive, a sharp move is anticipated.
However, if negotiations collapse, the franc will face renewed and significant selling pressure. In that scenario, EUR/CHF would likely break its recent stability around 0.9300 and move sharply higher. Traders must be prepared for this less likely, but still possible, outcome.
We saw a similar pattern of volatility in the franc during the final stages of the EU framework negotiations back in 2021. The currency is historically sensitive to major trade policy announcements. This current situation with the U.S. appears to be following that historical precedent closely.
After this week’s deadline passes, attention will likely shift back to the Swiss National Bank’s policy. Even with a trade deal, any strength in the franc could be temporary if inflation data later this month shows further cooling. The SNB has already cut rates twice since early 2024, and another cut this year remains a possibility.
