Swiss franc falls to 5-week low

USD/CHF is up for a third straight day. In the European session, the pair is trading at 0.9717, up 0.36%. The US dollar continues to show strength against most of the majors. The Swiss franc has fallen sharply, with USD/CHF climbing 360 points since August 16th.

KOF Economic Barometer falls again

The KOF Economic Barometer continued its downward trend, declining for a fourth straight month in August. The index dropped to 86.5, down from 90.1 in July and shy of the estimate of 89.0. Much of the August decline was related to consumer consumption, but the manufacturing sector is also showing weakness. Similar to the situation in other major economies, manufacturing activity has been hurt by supply chain disruptions and a lack of employees.

Switzerland will release the August inflation report on Thursday. The estimate for August CPI is 0.2% MoM, after a 0.0% reading in July. The Swiss central bank (SNB), which is not shy about intervening in currency markets, will be watching carefully. Higher inflation means the Swissie has less purchasing power, which suits the SNB as it has a paramount interest in the Swiss currency remaining weak so that Swiss exports are competitive.

In the US, the markets continue to digest Fed Chair Powell’s hawkish speech on Friday. The “read my lips” speech in which Powell firmly stated that there would be no pivot in policy appeared to have hit its mark, as equity markets took a tumble on Friday and again on Monday, although we are seeing a rebound today.

The Federal Reserve holds its next policy meeting on September 21^st and we can expect plenty of discussions as to whether the Fed will hike by 50 or 75 basis points. CME’s FedWatch has pegged the likelihood of a 75bp move at 66.5%, with a 33.5% likelihood of a 50bp move. These numbers are sure to change in the coming weeks, as the markets hunt for clues as to the Fed’s plans.

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USD/CHF Technical

• USD/CHF is testing resistance at 0.9720. Next, there is resistance at 0.9760
• There is support at 0.9642 and 0.9524

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