The US dollar (USD) to Swiss franc (CHF) rate has risen 4% across 2021 as risk sentiment improved amid the global economic recovery from Covid-19. With expectations of a rate hike from the US Federal Reserve, could the pair keep rising or will the draw of low inflation and the discovery of the Omicron variant boost the safe haven Swiss franc?
Read on for the latest USD/CHF news and where analysts see the pair heading across 2022.
How has USD/CHF performed across 2021?
The USD/CHF averaged around one-to-one across 2019 before Covid hit. That is to say that one dollar was equal to one Swiss franc. By the end of 2019, as Covid-19 spreading in China was making the headlines, the safe haven Swiss franc started strengthening against the US dollar, dragging the pair lower.
In 2020, Covid arrived in Europe and the US, and the US Federal Reserve implemented an ultra-loose monetary policy to stabilise the economy, sending USD/CHF lower across the year.
The pair started 2021 at 0.89, a level that was last seen in 2015 when the Swiss National Bank made an abrupt change to policy and abandoned the euro cap. From that six-year low USD/CHF rallied higher to 0.9470 by 1 April before falling back to 0.8940 in early June. From there the pair has been steadily grinding higher to 0.93 on 24 November, before easing lower again to 0.91 on 2 December after the discovery of Omicron.
What has been driving the Swiss franc?
The Swiss franc is considered a safe haven currency, owing to the stability of the Swiss government and its financial system. The currency’s safe haven status means that in times of global economic or geopolitical turmoil investors often buy into it.
As more countries ramped up their coronavirus vaccine programmes and the global economic recovery from the pandemic accelerated, demand for the Swiss franc slowly and steadily declined.
More recently, the Swiss franc’s safe haven status was confirmed and the currency gained in value amid the discovery of Omicron, the highly mutated Covid-19 strain. It remains unclear whether the new variant is more severe than Delta or whether it can evade current Covid-19 vaccines. However the uncertainty surrounding Omicron has unnerved investors, increasing flows to safe haven assets and currencies such as the Swiss franc.
The Swiss National Bank has a negative interest rate and fx intervention policy to prevent the Swiss france from becoming too highly valued. Rates are low at -0.75% and the central bank is showing no signs of moving to raise interest rates anytime soon, particularly in light of the very low inflation rate in Switzerland.
According to data from the Federal Statistics Office, consumer prices remained stable in November, increasing 1.5% compared to the same month a year earlier. So far, Switzerland has managed to avoid surging inflation which the US Federal Reserve and the European Central Bank (ECB) are struggling to contain.
This lower inflation rate could actually be driving demand for the CHF. According to analysts at ING: “The argument goes that with very low inflation in Switzerland, everyone else’s real interest rates (nominal less inflation) have come lower – thus making the CHF more attractive.”
While this is clear to see against the euro (EUR) as the Swiss franc trades at a 15-month high, this isn’t the case against the US dollar, amid rising expectations that the Fed could soon raise interest rates.
What is lifting the US dollar?
The US dollar has been steadily climbing against the Swiss franc and other major currencies as expectations increase that the Fed could start tightening monetary policy sooner than previously announced.
The economic recovery from the pandemic continues in the US. The Conference Board forecasts that the US economy will grow 5.5% in 2021, marking the fastest pace of growth in years. The labour market recovery is also moving in the right direction. According to the latest US non-farm payroll report, 531,000 jobs were created in October and the unemployment rate fell to 4.6%.
The latest initial jobless claims numbers were also particularly impressive, revealing that the number of Americans filing for initial unemployment benefits fell to 199,000, the lowest level since 1969.
At the same time that the jobs market is improving, inflation in the US is surging. Inflation jumped to a 30-year high in October, as rising food and petrol prices led to a broad-based increase in prices. The Consumer Price Index (CPI) surged to 6.2% year-on-year, well above the Fed’s 2% target.
In the latest Federal Reserve monetary policy meeting in November, the Fed announced that it will start tapering the monthly $120bn bond purchases by $15bn a month. This was the first move towards tightening the ultra-loose monetary policy implemented across the pandemic.
More recently Federal Reserve chair Jerome Powell told the Senate Banking Committee: “It is probably a good time to retire the use of the word transitory when discussing high inflation”.The Fed chair added that the pace at which the Fed is tapering its bond buying programme could probably be accelerated. This would lead to interest rates being hiked sooner. Expectations of tighter monetary policy from the Fed have lifted the US dollar over recent weeks and months.
USD/CHF technical analysis
USD/CHF has been trending higher across the year. The pair traded above a year-long ascending trendline, and recently faced rejection at 0.9370 forming a double top reversal pattern. The move lower has fallen through the 50-day simple moving average (SMA) and found support at the 200-day SMA. The relative strength index (RSI) is neutral at 50.
Investors may look for a breakout trade. Sellers will be looking for a move below the 200-day SMA at 0.9180 for a deeper selloff to 0.9090, the November low. Below here sellers could gain traction towards 0.9018, the August low.
Meanwhile, buyers might look for a move over the 50-day SMA at 0.9163 in order to open the door to 0.9313, the 5 October high ahead of 0.9370, which could prove to be a tough nut to crack.
Where do analysts see USD/CHF heading?
In their USD/CHF outlook, analysts at the Canadian Imperial Bank of Commerce (CIBC) expect the US dollar to strengthen, boosting the pair over the coming year. CIBC predicts that USD/CHF will rise to 0.96 in the first quarter of next year and continue rising to reach 1.00 by the third quarter of next year. Analysts say: “With the Fed’s [quantitative easing] QE tapering expected to end in mid-2022, rate hikes will quickly commence, and markets should start to price in more from the Fed post-2022, helping the dollar to maintain its dominance.”
Analysts at Citibank also expect the Swiss franc to decline in value versus the US Dollar. They expect a robust goal recovery backdrop into at least Q2 2022, which should lead to CFH weakness against the US dollar. The bank forecasts that USD/CFH will rise to 0.95 over the coming six to 12 months and their USD to CHF (long term) forecast is 1.02.
Fiona Cincotta, senior market analyst at City Index, also sees the pair rising to parity next year. In her note to Capital.com she said:
Meanwhile, at the time of writing (2 December), the algorithm-based forecast website Wallet Investor predicted that USD/CHF could weaken over the coming years. The USD/CHF rate was forecast to fall across 2022 to end the year 0.8755. Looking further ahead, the website’s USD/CHF exchange rate forecast suggested the pair could continue falling to close 2023 at 0.8402, 2024 at 0.8053 and 2025 at 0.7698.
Keep in mind that both analysts and online forecasting sites can and do get their predictions wrong. We always recommend that you do your own research and consider the latest market trends and news, technical and fundamental analysis, and expert opinion before making any investment decisions. Remember that price performance is not a guarantee of future returns. And never invest more money than you can afford to lose.
Whether USD/CHF goes up or not depends on whether the broad mood in the market keeps improving or not. Demand for the safe haven Swiss franc usually falls when risk sentiment improves. Central bank divergence could also play a part in USD/CHF movement.
The Swiss franc is often a good investment amid times of rising economic or political uncertainty. It is considered a safe haven thanks to the stability in its financial and political systems.
CHF/USD is not stronger than USD/CHF; it is the inverse of the currency pair. Whilst USD/CHF measures how many Swiss francs equal one US dollar, USD/CHF measures how many US dollars equals one Swiss franc.
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