Franc strengthens amid economic crisis and outpaces other currencies

According to NZZ, the fall of the dollar has become one of the key moments of the financial year 2025. The American currency has decreased in value against all 15 major currencies in the world amid serious economic upheavals caused by changes in U.S. trade policy.

In 2025, the dollar lost its reputation as a "safe-haven currency," with this role being taken over again by the Swiss franc. A key moment was the changes that occurred on April 2, when President Donald Trump announced a new tariff regime for many countries and regions. Although the initially announced tariffs were reduced, the average tariff rate increased from 2.3% to 14% — the highest level since 1939.

There is a noticeable weakening of the dollar

This change triggered a wave of fluctuations in the markets and led to a decline in the dollar, which continues to lose value compared to other currencies. In particular, the "greenback" depreciated by 20% against the Swedish krona, 16% against the Mexican peso, and 14% against the Swiss franc. The only exception was the yen, against which the dollar remained almost at the same level.

The changes that occurred in April determined the financial dynamics for the entire year. Thomas Stucki, Chief Investment Officer of the St. Gallen Cantonal Bank, notes that the decline of the dollar is an event that cannot be ignored. In trade-weighted terms, the currency lost about 7% of its value.

As for the franc, according to economist Carsten Junius, 2025 was not particularly outstanding for it. Nevertheless, the Swiss National Bank (SNB) intervened in dollar trading in the second quarter, acting in "reasonable and limited scales," adds the chief economist of J. Safra Sarasin bank.

The euro, in turn, depreciated against the franc by 1%. Junius links this to the fact that the interest rate differential between the Swiss zone and the eurozone reached 2.6 percentage points — the highest since the reunification of Germany.

The British pound, Chinese renminbi, and Japanese yen also significantly weakened — by 5%, 9%, and 12% respectively. Only a few currencies, such as the Swedish krona, demonstrated relative resilience against the franc.

Key rates were not a major factor but remain a significant indicator

In 2025, the monetary policy of various economic zones did not have a significant impact on exchange rates. Other important topics came to the forefront, while the Swiss National Bank, the U.S. Federal Reserve, and the European Central Bank continued their cycle of rate cuts.

The SNB lowered the key rate twice by 0.25 percentage points — to 0%. The ECB also reduced the rate four times by the same amount — to 2%. The Federal Reserve conducted three cuts of 0.25 percentage points, establishing a target range of 3.5–3.75%.

For 2026, analysts suggest that the SNB will not change the rate. The regulator noted that there is a "high threshold" for returning to negative rates, and some experts suggest that the first increase may occur in early 2027.

A similar situation is observed in the eurozone. According to derivatives markets, rate cuts are not priced in for the next year. ECB board member Isabel Schnabel recently hinted that the next step could be a rate hike.

In the U.S., on the contrary, further rate cuts are expected. The market anticipates two steps of 0.25 percentage points — in April and July. Uncertainty is heightened considering the change in Fed leadership: Chairman Jerome Powell's term expires in May, and President Trump has criticized him in recent months for his strict policy.

The choice of a new Fed head

The future of the dollar, according to Stucki, largely depends on whether Trump can strengthen control over the Fed's interest rate policy. An important moment will be the appointment of Powell's successor. Markets are discussing the possibility that the new Fed leader may lower the rate at the first meeting in June as a signal of a "new era."

Equally important will be whether Powell's successor can align the actions of the other Fed members regarding the rate, or whether resistance to the idea of a "weak dollar" will be too strong. Nevertheless, economists do not expect an outright rebellion. As Junius notes, several "no" votes in the recent rate decisions indicate a growing divergence of opinions within the Fed. For 2026, Junius predicts a slight strengthening of the franc against the euro and the dollar.

Source: InoSMI