- USD/CHF is down for the fifth day in a row and is back close to the monthly low.
- The surprise change in stance by the Swiss National Bank (SNB) continued to support the CHF and exerted some pressure.
- The softer tone surrounding the dollar was seen as another factor adding to the selling bias.
The pair USD/CHF struggled to capitalize on its modest intraday rally and was met with a fresh bid near the 0.9630-0.9635 region on the last day of the week. The drop, which marked the fifth consecutive day of negative movement, dragged spot prices to the 0.9565-0.9560 area, again approaching the monthly low during the European mid-session.
The Swiss National Bank (SNB) surprised markets with a 50 basis point rate hike at the end of last week’s June policy meeting and left the door open for further rate hikes to counter rising inflation. This, in turn, continued to support the Swiss franc, which, along with a softer tone around the US dollar, put some downward pressure on the USD/CHF pair.
The worsening global economic outlook forced market participants to bring forward the likely timing of rate cuts to counter a potential recession. It should be remembered that the Fed has forecast that the interest rate will fall to 3.4% in 2024 and to 2.5% in the long term, from 3.8% in 2023. The appreciation in the market was considered a key factor that undermined the dollar.
However, investors seem convinced that the Fed will maintain its aggressive policy of tightening in the short term to curb rising inflation. This, coupled with a rally in US bond yields, should act as a tailwind for the dollar. Aside from this, risk-on could undermine the safe-haven CHF and help limit USD/CHF’s decline.
Therefore, it will be prudent to wait for a convincing break below the horizontal support at 0.9550 before traders begin to position themselves for an extension of the recent sharp pullback from near the year’s high. Next, the US economic docket will present revised Michigan Consumer Sentiment Index and new home sales data.
This, along with US bond yields, will influence the dollar price dynamics and provide some momentum to the USD/CHF pair. Traders will follow signals from the broader risk sentiment to take advantage of some short-term opportunities on the final day of the week.
Technical levels
Source: Fx Street
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