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Spare a thought for the plucky Swiss National Bank, which finds itself at the sharp end of Donald Trump’s dollar drama.

The Alpine central bank, protector of one of the big three haven currencies in the global financial system, wears the scars of several fierce market battles over the years, generally not of its own making. Today’s franc fracas is particularly tricky.

The problem is that the US currency has been rather friendless in the opening weeks of 2026. One reason is that US interest rates have been heading lower, and are likely to head lower still, in contrast to other big economies. Another is that investors outside the US are looking to do a couple of big things: hold bigger stashes of assets in other currencies over time, in an effort to avoid the effects of US institutional degradation, or hold on to US assets but sell the currency to help deaden the pain. Overseas asset managers can no longer rely on the buck to pop higher when their US shares decline, so they have to take matters into their own hands.

The result is a soggy dollar. The dollar index, which tracks its value against a basket of other currencies, has taken a sizeable 1.5 per cent lurch lower so far this year to reach its lowest point since 2022. Gains on the other side of the ledger are concentrated in Europe, including in the euro, which is tickling $1.20, and in sterling, which is at its strongest point since 2021, providing yet another opportunity for a slow clap at the “UK needs an IMF bailout” bloviators, who have gone awfully quiet.

Against the Swiss franc, however, all of this is exaggerated. The dollar has declined by about 4 per cent against the franc in the year so far. Setting aside the big bust-up in the Swiss currency in 2015 — a whole other story relating to the SNB lifting a long-standing lid on its value — this is the strongest the so-called Swissie has been since 2011. It is cranking higher, albeit less dramatically, against the neighbouring euro too.

This is a serious pain for policymakers in Switzerland, which is a small, open economy. A strong franc makes its goods eye-wateringly expensive for foreigners and tends to pull inflation below target. 

Its options to respond, however, are limited. It could cut interest rates, already at zero, into negative territory, which it is loath to do after its last lengthy dalliance with sub-zero rates created ugly distortions in asset prices. Analysts and investors say it would do this only under severe duress. Or it could intervene directly in the currency markets to try to pull the franc down, but in turn risk irritating the US.

That is not appealing. It is not so long since Switzerland managed to work its way off the US’s list of currency manipulators, and an even shorter time since it charmed the Trump administration with golden gifts into backing down from some of the highest trade tariff rates on the planet. 

This is a spot few policymakers would like to inhabit, and also just one of numerous awkward side effects of the dollar’s droopy start to 2026.

As January wraps up, this is on very obvious display. The first month of the year has brought a very solid performance in US stocks — the benchmark S&P 500 index has gained about 1.5 per cent and crossed 7,000 briefly for the first time, rounding off a relentless ascent since the global tariffs shock of April 2025. The index has stuck around there even despite a sharp pullback in some supersized tech stocks this week, notably Microsoft.

But, just as in 2025, these gains melt away for investors outside the US because of the decline in the dollar. The 1.8 per cent ascent in the stocks index so far this year actually represents a small loss in euros, a slightly larger loss in sterling and a real stinker in Swiss francs.

As one big pensions investor put it to me this week, it’s important not to “over-rotate” out of US markets. But asset managers are not doing their job properly if they are not managing those currency risks. Since dollar hedging involves dollar selling, this can very easily become self-perpetuating.

The good news is that Trump could, if he really wanted, turn a lot of this around with a loud and clear declaration that he will keep his hands off the Federal Reserve, under the central bank’s new leadership that starts in May. On Friday, he offered some hope on this front, nominating Kevin Warsh, known in the past as a defender of higher rates, for the top job, helping to stem the bleeding in the buck.

But it is brave to assume the president will leave Warsh to do his job, and hard to believe Warsh got the nod in the first place without indicating he’s willing to keep hacking rates lower.

Swiss policymakers are caught at possibly the bluntest end of this soap opera, but everyone, from central bankers around the world and investors outside the US to importers and exporters of every stripe, will be caught up in this drama for months to come. 

Erecting defensive shields against further self-inflicted wounds to the dollar, which is still strong by historical standards, really is the only prudent way forward.

katie.martin@ft.com