- USD/CHF remains steady due to market caution amid increased uncertainty surrounding the US election results.
- Improved US Treasury yields could have provided support for the US Dollar.
- The continued slowdown in Swiss inflation has increased the likelihood of a bumper SNB rate cut in December.
USD/CHF holds ground after registering losses in the previous session, trading around 0.8640 during the Asian hours on Tuesday. The US Dollar (USD) remains steady as traders adopt market caution amid increased uncertainty surrounding the US presidential election. Additionally, improved US Treasury yields also provide support for the Greenback.
The opinion polls indicate that former President Donald Trump and Vice President Kamala Harris are nearly tied. The outcome may remain unknown for several days following Tuesday’s vote. Both Trump and Harris expressed confidence in their chances as they campaigned across Pennsylvania on the last frantic day of this exceptionally close presidential race.
The US Dollar Index (DXY), which measures the value of US Dollar against its six major peers, trades around 103.90 with 2-year and 10-year yields on US Treasury bonds standing at 4.16% and 4.29%, respectively, at the time of writing.
The Swiss Franc (CHF) may encounter difficulties as the likelihood of significant rate cuts by the Swiss National Bank (SNB) increases. This shift is driven by a continued slowdown in inflation in Switzerland, evidenced by the Consumer Price Index (CPI), which declined by 0.6% year-over-year in October. This CPI figure was notably below the SNB’s inflation forecast of 1% for the fourth quarter, raising the chances that the SNB could implement a more substantial rate cut in December to keep inflation within its target range of 0-2%.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action 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 Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every 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 is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally 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 CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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USD/CHF decisively breaks out of the top of its multi-week range, probably ending its protracted sideways market trend. A close clearly above 0.8540 and the range ceiling would cement bullish expectations.
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USD/CHF is now likely to reach an upside target at a minimum of 0.8617 (August 14 swing low), or 0.8622 (Fibonacci 61.8% extrapolation
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USD/CHF is rising within a range-bound market.
It has encountered resistance at a cluster of MAs but will probably continue higher.
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The trend is neither up nor down but rather sideways and so the oscillating character of the market is likely to extend, given the principle that “the trend is your friend.”
The blue Moving Average Convergence Divergence (MACD) momentum indicator line recently crossed above the red signal line, providing a buy signal. MACD is a more reliable indicator within sideways markets.
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US Dollar set for second day of gains while volatility declines and market woes fade
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The US Dollar recovers for a second day in a row this week.
The BoJ dropped mixed messages on its monetary policy.
The US Dollar index pops above 103.00 and rallies higher on Wednesday.
The US Dollar (USD) recovers as all asset classes start to head back to more normal levels. Equities are behaving quite well and are stable, volatility is easing, and safe havens such as Japanese Yen (JPY) and Swiss Franc (CHF) are easing further against the Greenback. The Japanese Yen, sinking over 1.5% against the US Dollar, is the biggest contributor to the recovery of the US Dollar Index (DXY).
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