Swiss franc recovering, but will SNB shift policy?

The Swiss franc has edged higher on Monday. In the European session, USD/CHF is trading at 0.8618, down 0.25%.

SNB concerned about Swiss franc’s surge

The Swiss National Bank isn’t shy about intervening on the currency markets, as it views intervention as an important tool to keep the Swiss franc competitive for export purposes. The central bank purchased Swiss francs during 2023 in order to boost its value and dampen inflation, which rose above the SNB’s 0%-2% target range.

The strategy worked as inflation returned to the target range, but the SNB may have been too successful, as the Swiss franc soared 9.0% against the US dollar in 2023. This made the Swiss franc the highest-gaining currency against the US dollar last year. In December, the Swiss franc hit a 12-year high against the US dollar.

The Swiss franc has recovered somewhat, rising 2.3% in January. Still, the SNB is concerned about the high-flying Swissie. At the Davos Summit earlier this month, SNB President Thomas Jordan warned that the SNB might rethink its current policy due to the Swiss franc’s sharp appreciation.

The SNB has held the benchmark rate at 1.75% since June and meets next on March 21. Jordan may be pivoting toward a rate cut – the markets have priced in a cut in June but Jordan’s comments have raised the odds of an initial cut in March.

In the US, the Fed’s preferred inflation gauge, the PCE Price Index, rose 0.2% m/m in December, compared to 0.1% in November. On an annual basis, the index remained steady at 2.6%. The Core PCE Index eased to 2.9%, down from 3.2% in November. Inflation continues to ease while economic growth remains solid, which is the recipe that the Fed hopes will continue. The Fed is in no rush to raise rates, and the markets have pared the odds of a quarter-point cut in March to 48%, down sharply from 72% a month ago, according to CME’s FedWatch tool.

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USD/CHF Technical

• USD/CHF is testing resistance at 0.8647. Above, there is resistance at 0.8678
• 0.8610 and 0.8559 are the next support lines

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