Swiss Franc extends losses as SNB unlikely to raise interest rates

• The Swiss Franc edges lower against the US Dollar on the back of relatively low inflation in Switzerland, which indicates interest rates remaining low. 
• SNB’s Jordan says Swiss Franc rising in real terms is hurting Swiss exporters, SNB unlikely to pursue CHF-strengthening policies. 
• USD/CHF hits resistance at falling trendline, 50-week SMA. 

The Swiss Franc (CHF) edges lower against the US Dollar (USD) on Wednesday as traders continue to bet on a less-inflationary outlook for Switzerland, supporting a relatively low interest rate policy and dampening foreign capital inflows. 

Inflation figures from Switzerland’s Federal Statistics Office released on Monday showed prices rising 1.2% in February, down from the 1.3% increase in January. Whilst not as low as the 1.1% forecast by economists, the data extended the trend lower in inflation, and positions the neutral country as one of the least inflationary in the western world. 

Declining inflation suggests the Swiss National Bank (SNB) will not have to raise base interest rates from the current 1.75% level in order to combat inflation, which in turn is likely to lower demand for the Swiss Franc from foreign investors seeking to park their capital where it can reap the highest return.

Swiss Franc too expensive, says SNB’s Jordan

In an interview with Bloomberg in February, the president of the Swiss National Bank, Thomas Jordan, said the Swiss Franc had been rising in nominal terms for several years, and that this had been “helpful”, as it has “shielded us from inflationary pressures from abroad.” Jordan added, however, that at the end of 2023 the Franc had started to rise in real terms, and that this was now a problem for Swiss businesses, many of whom are exporters.

His comments suggest the SNB is unlikely to introduce policy changes that will further appreciate the Swiss Franc, chief amongst them the elevation of interest rates. 

On the Horizon

The next key event for the USD/CHF is likely to be one that moves the US Dollar. The testimony of Federal Reserve chairman Jerome Powell before the US Congress on Wednesday at 15:00 GMT could impact USD. 

The Federal Reserve is currently expected to cut interest rates sometime in the summer, possibly in June. A run of poor macroeconomic data over the past few days increases that possibility. Traders will be watching the Fed Chair’s speech, therefore, for any hints the Fed is more closely aligning to a definite time line for lowering interest rates or even a set date.

If Powell intimates cuts are coming – either sooner than foreseen or in June – this could have a dramatic impact on the US Dollar, weakening it against most counterparts. 

Technical Analysis: Swiss Franc hits key chart level against US Dollar

The USD/CHF – the number of Swiss Francs one US Dollar can buy – bumps up against a key technical level on the charts which could mark a possible reversal point back down in line with the long-term downtrend.

The weekly chart below shows the price currently butting up against the falling trendline of a descending channel, as well as the key 50-week Simple Moving Average (SMA). It is possible this could mark the inflection point of a reversal where the pair starts moving down again within the falling channel. 

US Dollar vs Swiss Franc: weekly chart

The daily chart below shows a bearish divergence between price at the two peaks on February 14 and March 3. Although the March high was higher than the February high, the Moving Average Convergence/Divergence indicator (MACD) failed to make a higher high to match, suggesting waning strength in the up move. This could further indicate the possibility of a reversal back down being on the cards. 

It is also possible to see a possible topping pattern taking shape during late February and early March, perhaps a kind of bearish Double Top, further adding credence to the possibility of a reversal. 

US Dollar vs Swiss Franc: 1-day chart

The Shooting Star Japanese candlestick pattern on March 3 is another bearish indicator. 

Nevertheless, price has not yet started to reverse and there is still a possibility it could continue higher. A break above the high of the Shooting Star at 0.8892 would indicate a continuation of the short-term uptrend to a possible target at 0.9056. 

For confirmation of a reversal back down, on the other hand, price should break below the February 22 low of 0.8742, leading to a likely decline to 0.8645.