USD/CHF Price Forecast: Remains sluggish near 0.8450 as Fed large rate cut bets surge
- USD/CHF remains feeble near 0.8450 as traders raise the Fed 50 bps interest rate cut for Wednesday’s meeting.
- Investors expect the Fed to cut interest rates by 100 bps this year.
- The SNB is expected to cut its key borrowing rates for the third time in a row.
The USD/CHF pair extends its losing streak for the fourth trading session on Tuesday. The Swiss Franc asset remains sluggish near 0.8450 as the US Dollar (USD) continues to face selling pressure due to growing market expectations that the Federal Reserve (Fed) will deliver a 50 basis points (bps) interest rate cut on Wednesday.
The prospects for the Fed to begin reducing interest rates aggressively have been prompted by a sharp decline in the annual United States (US) headline Producer Price Index (PPI) data for August released last week. The underlying inflation decelerated at a faster-than-expected pace to 1.7%.
Investors will also focus on the Fed’s dot plot and economic projections. The Fed dot plot indicates where policymakers see the Federal fund rate heading in the medium and long term. According to the CME FedWatch tool, the Fed will cut interest rates by 100 bps by year-end.
Meanwhile, the Swiss Franc (CHF) remains firm even though market participants see the Swiss National Bank (SNB) reducing interest rates again later this month. The SNB has already cut its key borrowing rates by 50 bps this year to 1.25%.
USD/CHF remains on track toward the horizontal support plotted from the 28 December 2023 low of 0.8333 on a daily timeframe. The near-term and broader-term outlooks of the Swiss Franc asset remain bearish as all short-to-long-term Exponential Moving Averages (EMAs) are declining.
The 14-day Relative Strength Index (RSI) oscillates in the bearish range of 20.00-40.00, suggesting that a strong bearish momentum is intact.
More downside would appear if the asset breaks below the round-level support of 0.8400, which would drag the major towards the 28 December 2023 low of 0.8333 and round-level support of 0.8300.
On the flip side, a recovery move above the 10-day high of 0.8540 will drive the asset toward the round-level resistance of 0.8600, followed by the August 20 high of 0.8632.
USD/CHF daily 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.