USD/CHF wavers as SNB pledges to intervene ‘more strongly’ if franc strength continues
- The USD/CHF pair is rising as the market reacts to the SNB interest rate decision.
- The central bank left interest rates unchanged as most analysts were expecting.
- The decision came as the Swiss economy emerges from its worst recession in decades.
- It also pledged to intervene more strongly to devalue the franc.
The USD/CHF pair is up for the fifth straight day as the market reacts to the interest rate decision by the Swiss National Bank (SNB). The pair is trading at 0.92400, which is the highest it has been since July 24th.
SNB interest rate decision
The SNB concluded its two-day meeting today and delivered its verdict about the Swiss economy. The bank decided to leave interest rate unchanged at minus 0.75%. That was in line with what analysts polled by Bloomberg and Reuters were expecting. The loose monetary policy has been continuing for the past five years after the bank scrapped its peg to the euro.
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In the statement, the Thomas Jordan-led bank said that it was still concerned about the strengthening franc. Indeed, the currency has gained by more than 6% against the US dollar in the past three months. It has also gained by more than 3% against the euro. A strong franc is usually negative for the Swiss economy, which depends mostly on exports. In the statement, the bank said:
“In view of the fact that the Swiss franc is still highly valued, the SNB remains willing to intervene more strongly in the foreign exchange market, while taking the overall exchange rate situation into consideration.”
As a result, the bank has been working to ensure that the currency is not significantly overvalued. Indeed, in a recent report, analysts at Credit Suisse estimated that the bank has spent more than $98 billion on interventions this year.
Swiss economy recovering
The decision came at a time when the Switzerland economy is emerging from its worst recession in decades. Four weeks ago, data showed that the country’s GDP contracted by 8.2% in the second quarter. That was the worst quarterly decline in decades. In the statement, the bank said that it expects that the GDP will slide by 5% this year, the worst contraction since the 1970s. It also expects that the rate of inflation will remain negative this year and possibly turn positive in 2021. The statement said:
“At its last monetary policy assessment, the SNB had expected an even stronger decline. The forecast revision is mainly due to the fact that the downturn in the first half of the year was somewhat less strong than feared.”
Still, it was a better decline than what happened in most countries. And the government expects the economy to return to post-crisis level in the fourth quarter of 2021. Other peer countries like the UK, Eurozone, and the United States declined by more than 10%. Also, the country’s unemployment rate of about 3.3% is better than that of its peers.
USD/CHF technical outlook
The daily chart shows that the USD/CHF pair reached a low of 0.9000 in the final week of August. Since then, it has attempted to recover and formed an inverse head and shoulder pattern. Yesterday, it moved above the neckline of this pattern at 0.9200.
The price is also along the upper line of the Donchian channel. It is also slightly above the 23.6% Fibonacci retracement level and above the 25-day and 15-day exponential moving averages. Therefore, the price is likely to continue rising as bulls aim for the next resistance at 0.9392.