The USD/CHF exchange rate has plunged in the past three consecutive days, reaching its lowest level since July 24 as investors moved to the low-yielding Swiss franc. It dropped to a low of 0.7928, down by 14% from the year-to-date high.
Top banks are favoring the Swiss franc
The USD/CHF has pulled back in the past few months as investors dumped the US dollar amid worries about the economy and its relations with other countries.
In a note, Shusuke Yamada, a top analyst from Bank of America, said that he favored the Swiss franc as the best bet to consider amid the increasing risk premium for the US dollar and Japan.
Similarly, analysts at Goldman Sachs noted that the ongoing political instability in Japan should be supportive of the Swiss franc, which has now become a better safe-haven asset.
The Swiss franc has thrived despite the country’s low interest rates because of its political stability, neutrality in world’s affairs, and its strong economy. This explains why most foreign exchange reserve managers have increased their allocations to the currency to 0.76%, the highest level since 1992.
US concerns remain
The USD/CHF exchange rate has plunged because of the ongoing US dollar index (DXY) plunge amid the rising expectations that the Federal Reserve will cut interest rates.
The odds of a Fed cut jumped after the US published a series of weak jobs numbers on Friday. That report showed that the economy created 22,000 jobs as the unemployment rate rose to 4.3%.
The US labor market has been weaker-than-expected, with that report coming short of the expected 75,000. Additionally, the Bureau of Labor Statistics (BLS) said that the economy lost jobs in June.
In contrast, the Swiss economy is doing better, with the seasonally adjusted inflation rate standing at 2.9%. Inflation in the country has remained much lower than expected.
The upcoming US inflation data is expected to show that the headline and core consumer inflation rose in August. Precisely, the average estimate is that the headline inflation rose to 3%, while the core CPI rose to 3.1%, moving further away from the Federal Reserve’s target of 2.0%.
Therefore, the bank will likely cut interest rates on Wednesday despite the US being in stagflation. Stagflation is a period characterized by high inflation and slow economic growth.
In contrast, the Swiss bank has slashed interest rates to zero and may push it to cut rates to the negative zone in a bid to devalue the franc.
USD/CHF technical analysis
USD/CHF chart |Source: TradingView
The daily timeframe chart shows that the USD/CHF exchange rate has been in a strong downtrend in the past few months. It has plummeted from a high of 0.9200 in February to 0.7922, its lowest level since July this year.
The pair has moved below the 50-day and 25-day Exponential Moving Averages (EMA), a sign that the downtrend is strengthening. Also, the Relative Strength Index (RSI) has moved below the neutral point of 50.
The MACD indicator has moved below the zero line. Most notably, it is slowly nearing the important support level at 0.7870, its lowest level in July this year.
Therefore, the USD/CHF exchange rate will likely continue falling as sellers target the support at 0.7870, followed by the psychological point at 0.7800, its lowest level on July 1.
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