USD/CHF forecast: SNB interest rate decision preview
- The USD/CHF pair declined slightly ahead of the SNB interest rate decision.
- The bank is expected to maintain the world’s lowest interest rates.
- It will also address the strong property market.
The USD/CHF pair remained under pressure as traders waited for the upcoming Swiss National Bank (SNB) interest rate decision. The pair is trading at 0.9225, which is about 1.20% below the highest level this week.
SNB decision preview
The SNB started its monetary policy meeting on Wednesday. The meeting will end on Thursday when the bank will deliver its interest rate decision.
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Economists polled by Reuters and Bloomberg expect that the SNB will leave its benchmark interest rate at -0.75%. This makes it the lowest interest rate in the developed world.
According to Bloomberg, the central bank is preoccupied by the performance of the housing market, where prices have shot up parabolically in the past few years. As a result, the SNB will likely talk about its tools to cool the housing market.
Sounding hawkish will likely boost the Swiss franc, which the bank believes is highly overvalued. The SNB favours a weak franc in a bid to support the country’s exporters.
The decision comes at an important time for the Swiss economy. Recent data shows that the economy is recovering. However, a recent report by the State Secretariat for Economic Affairs (SECO) said that the economy will recover at a slower pace than previously expected.
Meanwhile, Switzerland has defied the so-called Philip’s curve. The curve states that a country’s inflation rate will rise as its unemployment rate declines. However, while Switzerland has one of the lowest unemployment rates in the world, it also has one of the lowest inflation rate. Recent data showed that the country’s headline CPI was below 1% in August. In a note, an analyst told Reuters:
“The SNB remains in an uncomfortable position: inflation is too low and the franc is high despite years of record low negative interest rates and continued intervention on currency markets,”
The four-hour chart shows that the USD/CHF pair has been in a bearish trend in the past few days. The pair has moved from a high of 0.9335 to the current 0.9220. It has even moved below the key support level at 0.9240, which was the lowest level since August 11. The pair has also dropped below the 25-day and 50-day moving averages.
Therefore, there is a likelihood that the pair will maintain a bearish trend as bears target the key support at 0.9200.
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