The franc is outperforming other G10 currencies due to heightened demand for safe-haven assets amid concerns over US policies. The revaluation has increased the risk of deflation returning to Switzerland. Let’s discuss this topic and make a trading plan for the USDCHF pair.
The article covers the following subjects:
Major Takeaways
- The SNB may return to currency intervention.
- Switzerland may lower the interest rate below zero.
- The franc’s trajectory depends on the US policies.
- Short trades can be opened if the USDCHF pair falls below 0.8125.
Weekly Fundamental Forecast for Franc
Which option is more painful for the economy: negative interest rates or high tariffs? The answer to this question is not straightforward, and the Swiss National Bank should consider how to respond to the strengthening of the Swiss franc. The USDCHF rate has reached its lowest point since the SNB discontinued the minimum exchange rate of CHF 1.20 per euro in 2015. The parallel is apt, as the franc was the top-performing currency among the world’s major currencies on Forex that year. Today, it is reclaiming that position.
The Swiss franc’s strengthening can be attributed to the high demand for safe-haven assets. Investors are allocating capital to the Swiss franc, the Japanese yen, and gold while avoiding the US dollar and Treasuries. This shift underscores the perception that the primary source of economic challenges is emanating from the US, particularly from the White House. The unpredictability and potential adverse impact of Donald Trump’s policies on the global economy have led to speculation about the stability of the USDCHF pair. The trade-weighted rate of the Swiss franc has nearly reached its maximum levels since 2023. At the time, the SNB hinted at currency intervention.
Trade-Weighted Swiss Franc
Source: Bloomberg.
The Swiss National Bank’s potential interference in the foreign exchange market could lead to tensions with the Trump administration. The bank’s earlier placement on Washington’s currency manipulator list was not perceived as significantly detrimental, but the current environment has shifted. The US has imposed increased tariffs on countries with significant foreign trade surpluses with the US, or that use competitive devaluations to stimulate their exports. In this context, the question arises as to whether the SNB would dare to intervene.
Another option is to revert to the negative interest rate policy that Switzerland implemented for eight years until 2022 to counteract deflation. However, a stronger franc could reduce import prices, which might trigger below-zero inflation.
Switzerland Inflation Rate
Source: Bloomberg.
However, among the big banks, only Goldman Sachs is forecasting negative SNB rates. Others anticipate that the cost of borrowing will decline to zero, where it will remain for an extended period. The derivatives market indicates a 60% likelihood of a key rate reduction of 25 basis points to 0% in June.
In my assessment, the USDCHF pair will be influenced by White House policies rather than by the Swiss National Bank’s actions. Hedge funds and asset managers frequently utilize the franc as a risk mitigation tool. A shift in this trend could allow investors to divest from the Swiss franc and vice versa.
Weekly USDCHF Trading Plan
While there have been some shifts in policy, the US will likely maintain its current tariff plans, allowing traders to sell the USDCHF pair on a breakout of the support level of 0.8125 or on a rebound from the resistance levels of 0.831 and 0.845.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDCHF in real time mode
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