Swiss Franc weakens against the US Dollar at start of 2024

• The Swiss Franc starts losing ground against the US Dollar at the start of the new year. 
• The move comes on the back of a recovery in the US Dollar amid rising Treasury yields. 
• Bond traders may be signaling they think the inflation outlook could be stickier than expected. 

The Swiss Franc (CHF) weakens against a strengthening US Dollar (USD) on Tuesday, at the start of the new year. The main reason seems to be higher US Treasury yields, with the 5, 10 and 30-year maturity Bond yields, all up by over 2% at the time of writing. The advances seem to suggest bond holders don’t share the widely held view that interest rates are likely to fall as sharply as some expect in 2024. Higher interest rates mean a stronger Dollar by attracting greater inflows of foreign capital.  

Negative press surrounding the Swiss Franc on Tuesday could be denting CHF demand after the news BNP Paribas is to compensate mortgage holders to whom it sold Swiss Franc loans prior to the 2015 devaluation, when CHF dropped its peg with the Euro. 

Daily digest market movers: Swiss Franc weakens as Treasury yields rebound

• The Swiss Franc weakens versus the US Dollar as US Treasuries rebound after a sustained decline for most of the end of 2023.  
• The Dollar recovery suggests bond holders may not share the widely held view that US inflation is coming down as quickly as some market participants expect. 
• The market currently sees the first interest rate cut from the Federal Reserve (Fed) happening at the Fed’s March meeting, however, if US data is particularly strong expectations could get pushed back – a positive for USD. 
• Negative press surrounding the Swiss Franc could be weighing on CHF after BNP Paribas made headlines on Tuesday, when it agreed to compensate mortgage holders in France who took out Swiss Franc loans prior to the Euro’s 2015 devaluation. 
• The bank was accused of mis-selling mortgages (it paid in Swiss Francs) which customers had to repay in Euros, after the Euro lost its peg against the Franc in 2015 and devalued massively, leaving them with outsized repayments, according to Reuters. 

Swiss Franc technical analysis: USD/CHF in strong downtrend, risk of correction

USD/CHF – the number of Swiss Francs that one US Dollar can buy – continues declining and has reached a new over-one-decade low. 

The pair is now arguably in a downtrend on all major time frames, suggesting bears are fully in control. 

US Dollar vs Swiss Franc: Weekly Chart 

USD/CHF has broken below the last key chart line at the July 2023 lows of 0.8552 and there is little in the way of key support below.

On the weekly chart, the Relative Strength Index (RSI) is showing slight bullish convergence at the December 2023 lows, however, compared to the July 2023 lows. This suggests the current downtrend may be losing momentum. The convergence occurs because – despite price falling to a new low in December, RSI did not follow suit when compared with July. 

During the last week of December the RSI also fell into oversold territory (below 30). If it remains oversold it will be a signal for short-traders not to add to their short positions. If there is a recovery this week and the RSI rises back above 30 it will give a signal to close short positions and buy longs.

This suggests a risk of a correction higher on the horizon. Nevertheless, the dominant trend remains bearish, suggesting the bias is eventually for lower prices. 

A break below last week’s 0.8335 low would re-confirm the downtrend and lead to further weakness, probably to 0.8300, and then below that to other round-number levels.