The United States dollar (USD) to Swiss franc (CHF) currency pair, referred to as the “Swissie” combines two of the world’s strongest reserve currencies. The Swiss franc is regarded as the ultimate safe haven currency due to Switzerland’s history of neutrality and its significance in the international banking sector. Swiss banks hold almost one-third of the privately owned wealth in the world.
The USD is the most widely traded currency in the world and is also regarded as a haven in times of uncertainty making the USD to CHF pair less volatile than many others. In the USD against CHF the Swiss franc is the quote currency and the USD is the base. That means that at the rate of Fr 0.9109 on November 3, 2020 it would take 0.9109 francs to buy $1 USD.
The USD/CHF outlook is significantly influenced by the monetary policies of the US Federal Reserve and the Swiss National Bank (SNB) as well as global economic and political factors. Looking towards the end of the year and into 2021 the most critical event will be the ongoing coronavirus pandemic and the ability of major powers to minimise its impact on their economies.
A prolonged court battle over the US election results or a breakdown in Brexit negotiations could also alter projections in the coming weeks.
As both currencies can be correlated with risk-off sentiment it is worth looking at the recent and upcoming monetary policy climate in each country.
In USD/CHF news the divisive election in the US has delayed the passing of additional stimulus funding as both parties refused to agree on many details. It is expected that when a final decision is made, even if a prolonged court battle is required, the first line of business will push through a stimulus package.
This would put upward pressure on the USD vs CHF forecast as markets should react positively and increase risk appetite. This is tempered by the fact that if Biden is able to hold on to his reported win, he will not officially take office until January 20, 2021 which could lead to further delays in reaching an agreement. Past outgoing presidents have been gracious in their cooperation with incumbents but President Trump has proven he is anything but traditional.
On the Swiss side, the next monetary policy assessment by the SNB is scheduled for December 17, 2020. In the last announcement on September 24 the bank signalled that it would continue its strategy of monetary expansion as well as support the current negative interest rate of -0.75 per cent as long as required to support the Swiss economy.
The Swiss economy is reliant on the competitiveness of its exports to survive and an appreciating franc lowers demand. It is widely expected that further easing of monetary policy will be required in December as Europe deals with a more aggressive second wave of coronavirus than anticipated.
Increasing the money supply in Switzerland would normally put upward pressure on the pair but many analysts feel that due to the ongoing economic turmoil some of this has already been priced into the USD/CHF prediction.
USD/CHF analysis and sentiment
The expectation is that the SNB will further ease monetary policy during the next assessment in December. The USD vs CHF pair has been trending downwards since the onset of the pandemic in March with a slight rebound in the early summer. After trading near parity a year ago, the franc has been appreciating since March when risk-off sentiment increased due to the pandemic.
After the previous assessment when the SNB expanded access to monetary policy and dropped interest rates the CHF did depreciate only to strengthen again as coronavirus cases rose in the US and Europe in the autumn. A strong franc is not beneficial to recovery of the Swiss economy which is heavily dependent on exports and intervention is likely as a means to support the struggling economy.
Both currencies are positively correlated to risk-off scenarios, in that they tend to rise as investors move away from riskier options, but in the USD/CHF forecast higher uncertainty tends to favour the franc. This push towards the franc will be compounded by the almost certain upcoming legal challenges in the US election. In the short-term USD/CHF outlook this will certainly put additional pressure on the franc and push down the USD to swiss franc pair.
USD/CHF: buy or sell?
The USD to CHF pair has been trading within the monthly range of Fr 0.9219-0.9031. At the current rate of 0.9109 on November 4, the USD to CHF forecast presents a short-term sell opportunity as the franc is likely to appreciate until the next monetary policy assessment in Switzerland.
Delays in reaching an agreement on further stimulus funding in the US as a result of legal challenges to the election should only strengthen the franc towards the end of the year. Analysts predict a slight downturn in the pair followed by a gradual shift towards the dollar as politics normalises and attention is put back on the US economy.
The franc should depreciate significantly late in the year as the Swiss government is forced to enact further stimulus of the economy in the face of pandemic restrictions and a strengthening currency. The USD/CHF long-term forecast as reported by analysts is a buy. The buy signal will continue to intensify the closer we get to the lower support levels around Fr 0.900 with a target of Fr 0.94 predicted within 12 months.
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