On Friday, in European trading, the USD/CHF currency pair saw a decrease of 0.2%, hovering around 0.8085. This decline follows a correction from a peak it reached on Wednesday, which was the highest in ten months at 0.8140. The Swiss franc is experiencing selling pressure as the anticipation for at least two interest rate increases by the US Federal Reserve this year begins to wane, contributing to further adjustments in the value of the US dollar.
As of now, the U.S. Dollar Index (DXY), which measures the dollar against six major currencies, has been gradually declining to approximately 101.35.
Based on the CME FedWatch tool, the likelihood of the Fed implementing at least two rate hikes this year has dropped to 41.7%, down from 50.2% just a week prior.
A fall in oil prices—attributed to ongoing technical talks between the US and Iran, alongside improved energy transit through the Strait of Hormuz—has stabilized global inflation expectations, prompting traders to reassess the Fed’s hawkish stance.
In the backdrop, the Swiss Franc (CHF) has been performing well against other major currencies amid a generally cautious market. A sell-off in artificial intelligence (AI) stocks has led to a risk-averse atmosphere among investors. Currently, S&P 500 futures are down about 0.43%, hovering at about 7,330, which indicates a declining risk appetite among investors.
USD/CHF Technical Analysis
The USD/CHF rate is at around 0.8085 right now. However, there seems to be a bullish sentiment while it stays above the 20-period exponential moving average (EMA) of 0.8007. The Relative Strength Index (RSI) currently sits at 65.37, nearing overbought territory, which might suggest that while there is still upward momentum, the currency pair could be due for some consolidation after its recent surge.
If we look at support levels, the high from March 31 stands at 0.8043, providing immediate support, followed by the 20-day EMA of 0.8007. On the upside, the pair could potentially rally towards the high of 0.8172 marked on August 1 before climbing higher to 0.8200, surpassing the ten-month high of 0.8140 set on June 24.
US Dollar Frequently Asked Questions
The United States Dollar (USD) serves as the official currency of the United States. Additionally, it acts as a “de facto” currency in several other nations, co-existing with local currencies. The US dollar is the most traded currency globally, making up over 88% of the entirety of foreign currency trades, with an average daily trading value registered at $6.6 trillion as of 2022. Following World War II, it became the leading reserve currency, replacing the British pound. For most of its history, the U.S. dollar was backed by gold until the gold standard was dismantled through the Bretton Woods agreement in 1971.
The principal factor affecting the value of the US dollar pertains to the monetary policy established by the Federal Reserve System (Fed). The Fed has two key objectives: to achieve price stability, or controlling inflation, and to promote full employment. Adjusting interest rates is the main mechanism for achieving these goals. Should inflation surge beyond the Fed’s 2% target, they are likely to raise interest rates to bolster the dollar’s value. Conversely, if inflation dips below 2% or if unemployment rises, they may reduce rates, putting pressure on the dollar.
In unusual situations, the Federal Reserve might also resort to printing more dollars and enacting quantitative easing (QE). This is a method employed to significantly boost credit flow within a weakened financial system. QE is typically a last-resort tool utilized during periods when credit is inaccessible, as banks become cautious about lending to one another due to fear of defaults from counterparties. This approach was notably used during the 2008 financial crisis when the Fed acquired U.S. Treasuries to inject more dollars into the economy, often resulting in a weaker dollar.
On the flip side, quantitative tightening (QT) refers to the Fed’s process of halting bond purchases from financial institutions, as well as refraining from reinvesting the principal from maturing bonds. This tends to be seen as positive for the US dollar.
