The USD/CHF currency pair has now risen for four straight days, hovering around 0.8180 during Monday’s Asian trading hours. This increase comes as the US Dollar gains traction due to strong expectations for an imminent interest rate hike by the Federal Reserve (Fed) following recently released inflation data from the US. The market is pricing in an estimated 87% chance of a quarter-point increase at the Fed’s meeting this Wednesday, a notable rise from the 59% probability just a week prior, according to the CME FedWatch tool.
The Consumer Price Index (CPI) in the US showed a faster increase in August, solidifying the belief that the Fed will act to raise interest rates soon. Data from the Bureau of Labor Statistics revealed a monthly rise of 0.4% in the US CPI for August, which brings the year-over-year increase to 3.4%. These figures met market expectations. Additionally, the core CPI—which excludes the often-volatile food and energy prices—moved up by 0.3% month-over-month, surpassing the earlier forecast of 0.2%.
On the flip side, the USD/CHF is experiencing some downward pressure as the Swiss Franc weakens amid growing speculation of an interest rate gap widening between the US and Switzerland, particularly with the Fed’s policy meeting on the horizon.
Furthermore, the Swiss Franc is facing selling pressure due to a new phase of yen-carry-trades. The Bank of Japan’s hawkish stance, combined with coordinated interventions by Washington and Tokyo to buy yen, has diminished its attractiveness as a funding currency. As a result, traders are moving towards other safe-haven currencies, like the CHF.
This shift is putting additional strain on the Swiss Franc, as investors are selling their loans in francs to take advantage of higher-yielding investment opportunities elsewhere. Moreover, unlike many major central banks, the Swiss National Bank (SNB) is expected to maintain its key policy rate at 0% through the end of the year, making it the lowest among major economies.
Momentum for USD/CHF builds as resistance level comes into play
Analysts from UOB Group indicate that their previously neutral outlook on the USD/CHF pair is shifting upward as it tests the upper boundary of its recent trading range. They recall noting on September 7th when the spot price was at 0.8100, that they anticipated the USD would trade within a range of 0.8055 to 0.8155. As of September 10th, they refined this range to a narrower 0.8060 to 0.8135.
However, UOB notes that after this point, the USD/CHF climbed to a peak of 0.8147, indicating that upward momentum is starting to take shape. Their outlook for the next one to three weeks suggests that if the USD can break and hold above the 0.8155 level, it could potentially advance to around 0.8175. They also mentioned that as long as the USD remains above a strong support level, currently at 0.8085, the chances for it to break above 0.8155 remain favorable.
