USD/CHF reverses back to 0.8850 mark after hitting 0.8890 post-FOMC

A whipsaw reaction in the US dollar to Wednesday’s FOMC policy announcement saw USD/CHF hit highs of the day above 0.8890 shortly after the initial rate decision announcement, only to reverse back towards 0.8850 as FOMC Chairman Jerome Powell spoke.

The initial spike higher was triggered by the FOMC disappointing expectations for either an expansion to its QE programme, or an adjustment of the monthly weighted average maturity of purchases. Instead, the bank opted to provide revamped guidance, and now says it will continue to buy $80B per month in US treasuries as well as $40B per month in agency-backed securities until “substantial further progress has been made” on its maximum employment and price stability goals.

However, the move higher in USD was quickly capped as dovish FOMC Chairman Jerome Powell gave markets reassurance in the post-announcement press conference that the Fed’s ultra-accommodative policy stance is going nowhere anytime soon, and that more stimulus remains on the table.

CHF underperforms as US labels country an FX manipulator

In the end, USD is trading lower against the majority of its G10 counterparts, aside from CAD (which is lower and at the bottom of the G10 performance table given dovish BoC commentary on Tuesday) and CHF, which is the second-worst performer and flat on the day vs the buck.

Weighing on CHF on Wednesday was the release of the US Currency Manipulation Report and the fact that Switzerland was designated as a currency manipulator. The designation ought not to have come as much of a surprise given that Switzerland easily ticks all three of the US Treasury’s main criteria to determine what countries are manipulating their currencies; the Swiss have a $49B trade surplus with the US (vs a $20B Treasury limit), the country has a current account surplus of 8.8% of GDP (vs a 2% Treasury limit) and its central bank FX intervention is more than 14.2% of GDP (vs a 2% Treasury limit).

The SNB immediately responded to the designation by saying that it continues to remain willing to intervene in FX markets. For context, with interest rates already at -0.75% and the country fighting deflation now for the past more than five years, FX intervention to weaken the value of CHF (which the SNB sees as highly overvalued given its safe-haven status) in order to boost inflation is a one the SNB’s only remaining monetary policy tools.

The SNB releases the result of its latest monetary policy decision on Thursday at 08:30GMT. Analysts expect the bank to hold its policy-setting steady and maintain its willingness to intervene in FX markets in order to weaken the “highly valued” CHF, and the US Treasury’s designation of Switzerland as a currency manipulator is unlikely to change this.

USD/CHF continues to the south within bearish trend channel

USD/CHF’s downside bias is maintained, technically speaking, given that the pair still resides within a downwards trend channel that to the upside links the 7, 11 and 16 December highs and to the downside the 3, 4, 7, 10, 11 and 16 December lows.

USD/CHF one hour chart