The USD/CHF exchange rate has bounced back in the past few months as the divergence between the Federal Reserve and the Swiss National Bank (SNB) continues. The pair rose to a high of 0.9100 on Tuesday as traders waited for the upcoming Jerome Powell statement and US inflation data.
Swiss National Bank rate cuts
The USD/CHF pair has rebounded as the Swiss National Bank has maintained a highly dovish sentiment recently. It has delivered several interest rate cuts, and the chairman has warned that rates may go negative this year. It slashed rates by 0.50% in December, bringing the official cash rate to 0.50%.
The bank is cutting rates to stimulate inflation and the economy while devaluing the Swiss franc. As an export-dependent economy, the SNB prefers a weaker currency that makes its products cheaper abroad.
Low interest rates are usually seen as being negative for the local currency since they discourage savings. They also lead to a carry trade opportunity where investors borrow from a low-interest-rate currency and invest in a high rate one.
There are chances that the Swiss National Bank will avoid negative rates, though, since the country’s economy remains stronger than in the European Union. The unemployment rate remains low, while the manufacturing sector is doing well.
Federal Reserve hawkish tone
The USD/CHF exchange rate has jumped as the US dollar index has rebounded, moving from $100 in September to over $108. The greenback has jumped against most developed and emerging market currencies.
Its performance will react to the upcoming Jerome Powell statement, in which he will talk about the state of the economy and the potential actions. The Fed has hinted that it will maintain interest rates higher for a while.
The statement will come a day before the US releases the latest consumer inflation data. Economists expect the data to show that the headline CPI to remain at 2.9%, and the core CPI, which excludes the volatile food and energy prices, to remain at 3.3%.
These numbers will come a few days after the US released strong jobs data. The economy created over 140k jobs in January, while the unemployment rate stabilized at 4.0%.
The USD/CHF pair is also reacting to the ongoing trade war between the US and its trade partners. Trump has implemented tariffs on steel and aluminum, which may lead to more economic challenges. The US and Swiss franc are widely seen as safe havens.
USD/CHF technical analysis
USDCHF chart by TradingView
The daily chart shows that the USD/CHF pair has been in a strong uptrend as the US dollar index rose. It has formed an ascending channel shown in green. The pair has remained above the 50-day and 100-day moving averages, a bullish sign.
It has moved slightly above the lower side of the ascending channel. Therefore, the pair will likely keep rising as bulls target the important resistance level at 110. A drop below the support at 108 will invalidate the bullish view.
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