- USD/CHF renews a five-month high around 0.8970 as the US Dollar performs strongly, with Fed policy in focus.
- The Fed is expected to cut interest rates by 25 bps to 4.25%-4.50%.
- Investors expect the SNB to cut interest rates further as risks of inflation falling below the SNB’s target have increased.
The USD/CHF pair extends its winning streak for the eighth trading day on Tuesday. The Swiss Franc marks a new five-month high around 0.8970, as the Swiss Franc (CHF) remains weak across the board on expectations that the Swiss National Bank (SNB) could continue to ease its monetary policy to avoid risks of inflation being below the central bank’s target.
Last week, the SNB surprisingly cut interest rates by 50 basis points (bps) to 0.5%, while investors expected a 25 bps rate cut.
This week, investors will focus on the SNB Bulletin report for the fourth quarter, which includes the ‘Monetary Policy Report’ and the ‘Business Cycle Trends’ report.
Meanwhile, the outperformance of the US Dollar (USD) has also strengthened the Swiss Franc pair. The Dollar Index (DXY) rises near 107.00 ahead of the Federal Reserve (Fed) interest rate decision, which will be announced on Wednesday. According to the Bloomberg survey, the Fed will cut its key interest rates by 25 basis points (bps) to 4.25%-4.50%, but will issue slightly hawkish comments on the outlook for monetary policy.
USD/CHF seems confident of making a decisive break above the supply zone, which is plotted in a range of 0.8925-0.8950 on a daily time frame. The upward sloping 20-day EMA near 0.8856 suggests the trend is bullish.
The 14-day Relative Strength Index (RSI) is swinging in the bullish range of 60.00-80.00, indicating strong upward momentum.
After breaking above the intraday high of 0.8975, the asset could rally near the psychological resistance of 0.9000 and the July 2 high of 0.9050.
In an alternative scenario, a downside move below the round support level of 0.8700 could drag the asset towards the October 23 low of 0.8650, followed by the November low of 0.8616.
USD/CHF daily chart
Swiss Franc FAQs
The Swiss Franc (CHF) is the official currency of Switzerland. It is among the ten most traded currencies globally, reaching volumes that far exceed the size of the Swiss economy. Its value is determined by general market sentiment, the economic health of the country or measures taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the value of the franc, causing turbulence in the markets. Although the peg is no longer in force, the fortunes of the Swiss franc tend to be highly correlated with that of the euro due to the Swiss economy’s high dependence on the neighboring eurozone.
The Swiss Franc (CHF) is considered a safe haven asset, or a currency that investors tend to buy during times of market stress. This is due to the perception of Switzerland in the world: a stable economy, a strong export sector, large central bank reserves or a long-standing political stance towards neutrality in global conflicts make the country’s currency a good option for investors who shy away from risks. Turbulent times are likely to strengthen the value of CHF against other currencies that are considered riskier to invest in.
The Swiss National Bank (SNB) meets four times a year (once a quarter, less than other major central banks) to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation exceeds the target or is expected to exceed it in the foreseeable future, the bank will attempt to control price growth by raising its reference rate. Higher interest rates are usually positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the CHF.
Macroeconomic data published in Switzerland is essential to assess the state of the economy and can affect the valuation of the Swiss Franc (CHF). The Swiss economy is broadly stable, but any sudden changes in economic growth, inflation, current account or central bank foreign exchange reserves have the potential to trigger moves in the CHF. In general, high economic growth, low unemployment and high confidence are good for the CHF. Conversely, if economic data points to weakening momentum, the CHF is likely to depreciate.
As a small, open economy, Switzerland relies heavily on the health of neighboring Eurozone economies. The European Union as a whole is Switzerland’s main economic partner and a key political ally, so the stability of macroeconomic and monetary policy in the eurozone is essential for Switzerland and, therefore, for the Swiss Franc (CHF). With such dependence, some models suggest that the correlation between the fortunes of the Euro (EUR) and the Swiss Franc is greater than 90%, or almost perfect.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
