Swiss Franc gains against US Dollar during Powell testimony
- The Swiss Franc trades higher against the US Dollar after Fed Chairman Powell mentions rate cuts in his testimony to Congress.
- SNB’s Jordan says Swiss Franc rising in real terms is hurting Swiss exporters, SNB unlikely to pursue CHF-strengthening policies.
- USD/CHF hits resistance at falling trendline, 50-week SMA.
The Swiss Franc (CHF) trades higher against the US Dollar (USD) on Wednesday during the US session as Federal Reserve Chairman Powell says rate cuts are coming, in his testimony to Congress. A run of negative macroeconomic data, meanwhile, also weighs on the Greenback, pushing USD/CHF lower. Most recently, lower-than-expected ADP employment change and JOLTS job openings held back USD bulls.
The Swiss Franc, however, is itself hampered by a less-inflationary outlook for Switzerland that supports a relatively low interest rate policy, dampening foreign capital inflows for the Franc.
Inflation figures from Switzerland’s Federal Statistics Office released on Monday showed prices rising 1.2% in February, down from the 1.3% increase in January. Whilst not as low as the 1.1% forecast by economists, the data extended the trend lower in inflation, and positions the neutral country as one of the least inflationary in the western world.
Declining inflation suggests the Swiss National Bank (SNB) will not have to raise base interest rates from the current 1.75% level in order to combat inflation, which in turn is likely to lower demand for the Swiss Franc from foreign investors seeking to park their capital where it can reap the highest return.
Swiss Franc too expensive, says SNB’s Jordan
In an interview with Bloomberg in February, the president of the Swiss National Bank, Thomas Jordan, said the Swiss Franc had been rising in nominal terms for several years, and that this had been “helpful”, as it has “shielded us from inflationary pressures from abroad.” Jordan added, however, that at the end of 2023 the Franc had started to rise in real terms, and that this was now a problem for Swiss businesses, many of whom are exporters.
His comments suggest the SNB is unlikely to introduce policy changes that will further appreciate the Swiss Franc, chief amongst them the elevation of interest rates.
Technical Analysis: Swiss Franc hits key chart level against US Dollar
The USD/CHF – the number of Swiss Francs one US Dollar can buy – bumps up against a key technical level on the charts which could mark a possible reversal point back down in line with the long-term downtrend.
The weekly chart below shows the price currently butting up against the falling trendline of a descending channel, as well as the key 50-week Simple Moving Average (SMA). It is possible this could mark the inflection point of a reversal where the pair starts moving down again within the falling channel.
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US Dollar vs Swiss Franc: weekly chart
The daily chart below shows a bearish divergence between price at the two peaks on February 14 and March 3. Although the March high was higher than the February high, the Moving Average Convergence/Divergence indicator (MACD) failed to make a higher high to match, suggesting waning strength in the up move. This could further indicate the possibility of a reversal back down being on the cards.
It is also possible to see a possible topping pattern taking shape during late February and early March, perhaps a kind of bearish Double Top, further adding credence to the possibility of a reversal.
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US Dollar vs Swiss Franc: 1-day chart
The Shooting Star Japanese candlestick pattern on March 3 is another bearish indicator.
Nevertheless, price has not yet started to reverse and there is still a possibility it could continue higher. A break above the high of the Shooting Star at 0.8892 would indicate a continuation of the short-term uptrend to a possible target at 0.9056.
For confirmation of a reversal back down, on the other hand, price should break below the February 22 low of 0.8742, leading to a likely decline to 0.8645.
SNB FAQs
What is the Swiss National Bank?
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.
How does the Swiss National Bank interest-rate policy affect the Swiss Franc?
The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive 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.
Does the Swiss National Bank intervene in the forex market?
Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.
When does the Swiss National Bank Governing Council decide on monetary policy?
The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.
Author
Joaquin Monfort
FXStreet
Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.
