Swiss Franc trades lower versus US Dollar on rising Treasury yields

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.

Swiss Franc FAQs

What key factors drive the Swiss Franc?

The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.

Why is the Swiss Franc considered a safe-haven currency?

The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.

How do decisions of the Swiss National Bank impact the Swiss Franc?

The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.

How does economic data influence the value of the Swiss Franc?

Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.

How does the Eurozone monetary policy affect the Swiss Franc?

As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.

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