USD/CHF slumps to 2015 lows after the final SNB rate decision of the year

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Dec 17, 2020
  • The USD/CHF pair wavered after the latest Swiss National Bank decision.
  • The bank left the main interest rate unchanged at -0.75%, in line with expectations.
  • The decision came a day after the US declared Switzerland a currency manipulator.

The USD/CHF price wavered after the final interest rate decision by the Swiss National Bank (SNB) and the Federal Reserve. The pair is trading at 0.8850, which is close to its lowest level since 2015.

USD/CHF
USD/CHF price action

SNB rate decision

The SNB concluded its two-day meeting today, leaving the main interest rate unchanged at -0.75% where they have been since January 2015. That was in line with what most analysts were expecting and what the bank had guided before

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The bank maintained that the expansionary policy was necessary to cushion the economy from the impact of the Covid pandemic.

Further, the SNB also upgraded its economic forecast for the year. It expects the economy to contract by 3%, which is better than the previous estimate It also expects the inflation rate to move back to the negative territory in the coming year. The bank said:

“At its monetary policy assessment in September, it had anticipated an even stronger decline. The revision is due to the fact that the decrease in GDP resulting from the first wave of the pandemic was not as substantial as originally expected.”

This decision came two days after the State Secretariat for Economic Affairs (SECO) said that the economy will contract by 3.3% this year and then bounce back 3.0% in 2021.

Most importantly, the decision came a day after the Federal Reserve also made its final decision of the year. It left rates unchanged and committed to continue boosting its asset purchases.

US declares Switzerland a currency manipulator

In its statement today, the SNB maintained that the Swiss franc was still overvalued and committed to doing more. This is important for two reasons. First, a stronger franc is usually negative for the Swiss economy, which makes most of its revenue from exports. As such, a stronger currency makes its goods more expensive.

Second, the statement came a day after the United States declared the country a currency manipulator. The Treasury Department said that the country, together with Vietnam, held their currencies lower to “prevent effective balance of payments adjustments.”

Still, economists don’t expect this move to have a major impact on the USD/CHF since the Trump administration is in its waning days. Also, the Swiss franc has actually gained by 10% against the dollar since March.

USD/CHF technical outlook

USD/CHF
USD/CHF technical outlook

The USD/CHF has been in a strong downward trend after peaking at 0.9900 early this year. Analysts at key forex brokers believe that the decline was mostly because of the weaker US dollar as the risk-off sentiment swept the market.

On the daily chart, it remains below the short and longer-term moving averages while the two lines and the histogram of the MACD are below the neutral line.

Therefore, the pair will likely continue falling as bears target the next psychological level of 0.8800. However, this trade will be invalidated if the price manages to move above 0.90 since it will imply that there are more buyers in the market.

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