USD/CHF – Swiss franc climbs higher, SNB meeting eyed

The Swiss franc is showing some strength on Tuesday. In the European session, USD/CHF is trading at 0.9238, down 0.58%.

SNB expected to hike but by how much?

The turmoil which has roiled the financial markets over the past week has eased today. European stock markets are steady, and shares of UBS and Credit Suisse are both higher. The extraordinary measures taken on the weekend, namely, the emergency takeover of Credit Suisse by UBS and the coordinated move by six major central banks to boost liquidity appear to have had a calming effect on jittery investors. These moves may have achieved the critical goal of containing the contagion in the banking system and avoiding a full-scale financial crisis.

The bank crisis has shocked investors, as Credit Suisse, the second largest bank in Switzerland, has toppled like a deck of cards, with its share price plunging to below one Swiss franc. The consolidated Swiss banking sector has lost a key player in a matter of days, and the stellar reputation of the Swiss banking system has been dealt a huge blow. One analyst went as far as stating that the demise of Credit Suisse has turned Switzerland into a “financial banana republic”.

The volatility in the foreign exchange markets has paled in comparison to the turmoil in the equity and commodity markets. Still, the Swiss franc has lost ground against the US dollar and the euro since last week, when Credit Suisse collapsed. This points to the Swissie losing some of its attraction as a safe-haven asset.

In the midst of the bank crisis, the Swiss National Bank (SNB) holds a policy meeting on Thursday. The markets have priced at 50/50 the odds of a 25 or 50 basis point increase. Like the ECB, SNB policymakers face a dilemma of whether to remain aggressive in the fight against inflation or to ease up due to concerns over the turmoil in the Swiss banking sector. The ECB opted for the 50-bp move and we’ll have to wait and see if the SNB follows suit.

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USD/CHF Technical

• USD/CHF faces resistance at 0.9304 and 0.9382
• 0.9226 and 0.9110 are providing support

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