The USD/CHF exchange rate has plunged in the past few months as the Swiss franc gained momentum because of its safe-haven status and the ongoing US dollar index (DXY) crash. The pair retreated to a low of 0.8054 last week, its lowest swing since April 22.
It has plunged by 11.72% from its highest point since January, making the Swiss franc one of the best-performing currencies this year. This article explores the USDCHF forecast ahead of the Swiss National Bank (SNB) and Federal Reserve interest rate decisions.
Swiss National Bank interest rate decision
The USD/CHF exchange rate will be in the spotlight this week as the SNB delivers its monetary policy decision on June 19.
Economists polled by Bloomberg believe that the bank will decide to slash interest rates again. In this case, the bank will bring rates to zero, continuing a trend that started last year.
Some analysts still believe that the bank will opt to cut rates below zero this week, while others, including Goldman Sachs and Nomura, expect that the bank will slash rates below zero in September.
The bank’s dovish tone is mostly because its view that the Swiss franc is highly overvalued against the euro and the US dollar. Rate cuts, as such, are meant to make the currency unattractive to investors and businesses.
The SNB prefers a weaker currency because the country generates most of its revenue from exports, mainly to the European Union. A stronger franc makes its exports less competitive.
One reason for cutting interest rates will be to intensify the carry trade opportunity between the US and Switzerland. A carry trade happens when investors borrow from a low-interest-rate country and invest in a high-interest-rate country.
In this case, a risk-free trade is to borrow in Switzerland and invest in a high-yielding country like the United States, where interest rates remains at 4.50%.
The other reason for the SNB interest rate cut will be to stimulate inflation in Switzerland. Recent data shows that the headline consumer inflation has turned negative for the first time since 2021, as the weaker Swiss franc has made it cheaper to import key products like oil.
Federal Reserve interest rate decision
The other key catalyst for the USD/CHF exchange rate will be the Federal Reserve interest rate decision on Wednesday.
Most economists expect the bank to leave interest rates unchanged and maintain a wait-and-see approach.
The Fed is waiting for more data to provide more color about the state of inflation following Donald Trump’s reciprocal tariffs.
Polymarket data shows that most traders don’t expect the Fed to cut until September.
This week’s interest rate decision will irk Donald Trump, who has pressed the Fed to deliver a full point.
The USD/CHF exchange rate will also react to several key economic data this week. The US will publish the latest retail sales, manufacturing production, and industrial production data.
USD/CHF technical analysis
USD/CHF exchange rate chart | Source: TradingView
The daily chart shows that the USD/CHF exchange rate has been in a strong downtrend in the past few months. It has moved from a high of 0.9200 in February to a low of 0.8100, its lowest point since April.
The pair has moved below the 50-day and 200-day Exponential Moving Averages (EMA). It formed a death cross pattern on April 7, a sign that the downtrend is continuing.
The Relative Strength Index (RSI) and the Stochastic Oscillator have all drifted downwards.
Therefore, the most likely scenario is where the pair continues falling as sellers target the psychological point at 0.800.
However, there is hope that the USD/CHF pair will rebound since it is facing a double-bottom pattern at 0.8055 and a neckline at 0.8473.
The post USD/CHF forecast ahead of SNB and Fed interest rate decisions appeared first on Invezz
