Swiss franc jumps on US dollar retreat

The Swiss franc has posted strong gains in the Monday session. USD/CHF is currently trading at 0.9237, down 0.7% on the day.

Swiss franc rebounds

The US dollar has started the week with losses against the major currencies, with the exception of the Japanese yen. The dollar’s downturn started last week and accelerated after Merck announced positive trial data for a Covid pill, which sent Wall Street higher. As well, the dollar has been undermined by profit-taking and a slight easing in US Treasury yields.

The dollar’s recent upswing sent USD/CHF to a high of 0.9368 on Thursday, its highest level since early April. This no doubt has pleased the Swiss National Bank, which is always concerned about the value of the franc. The economy relies heavily on exports, and a strong franc would make the country’s exports less attractive to foreign buyers.

Central banks across the globe are having to deal with a spike in inflation, as the recovery from Covid has unleashed a huge demand which factories have not been able to keep up with. The Federal Reserve and the BoE have argued that the surge in inflation is transitory, but as months go by and inflation remains at high levels, this stance is being questioned, even by central bank policymakers. Last week, Fed Chair Powell grudgingly acknowledged that high inflation will be around for longer than the Fed had anticipated.

In this new era of inflation, there is increasing pressure on central banks to hike interest rates, and Norway and the Czech Republic have already raised rates. The Swiss National Bank doesn’t seem to have these headaches, as inflation remains low in Switzerland. CPI rose 0.9% in September (YoY), unchanged from the August release, and below the consensus of 1.1%. The central bank has an interest rate of -0.75%, the lowest rate of any major bank, and there is no reason for the Bank to make any changes to its rate policy.

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USD/CHF Technical

• USD/CHF is testing support at 0.9242. Below, there is support at 0.9178
• There is resistance at 0.9369, followed by resistance at 0.9432

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