Swiss Franc set to weaken as SNB drops strong-Franc policy

• The Swiss Franc is forecast to fall as the Swiss National Bank (SNB) drops its strong FX policy. 
• The central bank had previously strengthened the Franc as a means of subduing inflation. 
• The SNB is jettisoning the approach as it considers the CHF is “too strong” for Swiss exporters.  

The Swiss Franc (CHF) trades in a range in the upper 0.8700s against the US Dollar (USD) on Wednesday. Overall the outlook is not particularly positive for the Swiss Franc given the policy stance of its central bank, the Swiss National Bank (SNB), which does not want to encourage a strong Franc any longer. 

Risk appetite is recovering during the European session with the DAX, CAC 40 and  FTSE 100 all up on the day. The positive-risk backdrop is also not helpful to the Swiss Franc as it is a safe-haven. 

Swiss Franc at risk from SNB policy approach

Swiss Franc’s upside is likely to be capped as the Swiss National Bank (SNB) changes its policy to the currency. Previously it had strengthened the CHF to subdue inflation, however, recently SNB Chairman Thomas Jordan said the Franc has become unpalatably strong for Swiss businesses, many of whom are exporters.

His comments reflect the data on Switzerland Foreign Exchange Reserves (CHFER), which shows non-CHF FX reserves have been recovering since the autumn of 2023. This could be a sign the SNB is selling the Swiss Franc to purchase other currencies, with the aim of dampening CHF’s value. 

Switzerland Foreign Exchange Reserves: Monthly chart

According to analysts at HSBC, the Swiss Franc is likely to weaken against the US Dollar over the near term, since “FX strength is no longer a tool or policy aspiration,” for the SNB, and global equity markets are going from strength to strength. 

On the Horizon

Swiss Producer and Import Prices for February are the next key release for the Swiss Franc, although they do not generally have a big impact on the exchange rate. An unexpected rise in the metric, however, which comes out at 7:30 GMT on Thursday, would support the Swiss Franc and vice versa for a fall. Previous results showed a 2.3% fall YoY and a 0.5% decline MoM in January. 

US Producer Prices Ex Food & Energy for February, released on Thursday at 12:30 GMT, could also impact the US Dollar and USD/CHF. Current expectations are for a slowdown to 1.9% YoY from the 2.0% increase seen in January. Similarly, US Retail Sales data, released at the same time, could also rock US pairs. 

Technical Analysis: Swiss Franc versus US Dollar pinned below trendline

The USD/CHF – the number of Swiss Francs one US Dollar can buy – is stuck below several key technical levels.

The first of these is the falling trendline of a descending channel at around 0.8780. The second, the key 50-week Simple Moving Average (SMA) at 0.8850 (not shown in the chart). These are touch resistance levels and it is possible this could mark the inflection point of a reversal where the pair starts moving down again. 

US Dollar vs Swiss Franc: 4-hour chart

USD/CHF has pierced below the key February 22 low of 0.8742 but failed to close below. Nevertheless, this suggests weakness and raises the possibility of a deeper decline unfolding to 0.8645. 

A break below that level would probably indicate a reversal of the short-term trend. The next target to the downside would be 0.8645, followed by the January 31 lows of 0.8551. 

There is still a fairly strong possibility USD/CHF could recover and resume its trend higher. A break above the trendline and the 0.8892 high would indicate a continuation of the short-term uptrend to a possible target at 0.9056.