USD/CHF Price Forecast: Safe-haven appeal of Swiss Franc improves
- USD/CHF slumps to a three-month low near 0.8760 amid firm safe-haven demand for the Swiss Franc.
- The US economy is expected to face economic shocks in the near term.
- Investors see the SNB easing the monetary policy further due to price pressures remaining lower.
The USD/CHF pair posts a fresh three-month low around 0.8760 at the start of the week. The pair weakens as the safe-haven demand of the Swiss Franc (CHF) increases amid deepening concerns over the United States (US) economic outlook.
Investors see the US economy to face economic turbulence in the near term as the “America First” agenda of President Donald Trump is expected to result in a slowdown in the overall demand. On Friday, Trump said in an interview with Fox News that there is a period of “transition”, because what we are doing is very “big”.
Fears of a US growth slowdown have prompted expectations that the Federal Reserve (Fed) could cut interest rates in the June policy meeting. According to the CME FedWatch tool, the likelihood for the Fed to cut interest rates in June has increased to 82% from 54% a month ago.
In the Swiss economy, the Swiss National Bank (SNB) is expected to continue reducing interest rates amid persistently lower inflationary pressures. In February, the Consumer Price Index (CPI) rose by 0.3%, faster than estimates of 0.2% but decelerated from 0.4% in January.
USD/CHF slides sharply after failing to revisit its 15-month high around 0.9245. The outlook of the Swiss Franc pair has become uncertain as it has dropped below the 20-week Exponential Moving Average (EMA), which trades around near 0.8920.
The 14-week Relative Strength Index (RSI) slides to near 40.00. A bearish momentum would be triggered if the RSI falls below that level.
The asset would face more downside toward the November 8 low of 0.8700 and the November 6 low of 0.8620 if it falls below the December 6 low of 0.8735.
On the flip side, a recovery move above the psychological support of 0.9000 would drive the asset towards the February 28 high of 0.9036, followed by the round-level resistance of 0.9100.
USD/CHF weekly chart
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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