USD/CHF – Swiss franc hits 16-week high on dovish Fed

• Swiss inflation expected to rise to 0.5%
• Swiss franc’s appreciation raises concerns at SNB
• Fed raises rates by 25 bp

USD/CHF is trading at 0.8872 today, up 0.32%. The pair is recovering after the Swiss franc surged by 1% a day earlier.

USD/CHF falls close to 0.88 line

The Swiss franc pummelled the US dollar on Wednesday and USD/CHF fell as low as 0.8820 today, its lowest level since January 21st. The Swissie has gained around 200 points in just three weeks and 600 points since March 1st. This sharp upswing is likely raising eyebrows at the Swiss National Bank, which has little appetite for sharp exchange rate moves. The central bank keeps a careful eye on the value of the Swiss franc and has on occasion intervened in the currency markets, drawing sharp criticism from the US Treasury Department.

The SNB is concerned that if a rise in the value of the Swiss franc will dampen the economy, which is heavily reliant on exports. This week’s data reiterated that the Swiss economy is showing some signs of strain. Consumer confidence fell to -13 in the second quarter, down from -9 in Q1. Manufacturing PMI continued to decline, slowing from 47.0 to 45.3 in April. The week wraps up with CPI for April on Friday, CPI is expected to rise to 0.5% m/m, up from 0.2% in March. A rise in inflation could weigh on the Swiss franc, which would be good news for central bank policy makers.

Fed hikes by 25 bp

In the US, the Fed raised rates by 25-bp, as widely expected. Investors zoomed in the dovish rate statement, with the Fed removing the phrase “some additional” rate hikes might be needed. It changed the language to say that it would examine various factors in “determining the extent” that further hikes would be needed. The Swiss franc responded with sharp gains against the greenback.

Powell sounded more hawkish in the press conference, saying that higher interest rates had not sufficiently slowed down the economy, the labour market or inflation. Just to be crystal clear, Powell said that “inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go”. Powell said a rate cut was unlikely given high inflation, but the markets have priced in a rate cut in September at 80%.

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USD/CHF Technical

• USD/CHF is testing resistance at 0.8872. The next resistance line is 0.8997
• 0.8800 and 0.8748 are providing support

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