Market Overview

20 October 2022

Swiss Franc Stopped at Parity

The Swiss Franc has reached the long-awaited parity with the U.S. Dollar that has been strengthening across the market since September. But now the USDCHF has stopped after beating this psychologically strong resistance level. The pair has been at this level four times over the last decade but has never gone this far since the pandemic. It is now moving inside the narrow range of 1.001-1.007.

This is the range that the Franc is testing for a third time this year and it may be successful this time. However, for now the pro and con factors have seemingly found a balance. The U.S. Dollar is marching bravely and has been beating all other currencies over recent months, supported by the uncompromised hawkish monetary policy of the Federal Reserve (Fed) which is seemingly continuing its interest rate hikes together with cleaning off its balance sheet in order to get inflation under control. More than 94% of investors are waiting for the Fed to raise interest rates up to 4% from the current 3.25% during its meeting on November 2. Last week there were only 82% of investors who expected this jumbo hike. The steep interest rate hike trajectory boosted U.S. Treasuries yields and 10-year benchmark Treasuries yield rose from 3.6% to 4.2% this month alone. The Greenback itself is considered to be a safe haven asset that is experiencing elevated demand from all over the world, including European investors.

But the Franc dramatically differs from other European currencies as the Swiss economy is much more sustainable than other European nations and the United States. The Swiss GDP is at 2.8% year-on-year compared to 1.8% in the U.S., inflation is at 3.3% compared to 8.2% respectively, while unemployment is much lower at 1.9% compared to 3.5% in America. So the Franc seems to be much stronger against the U.S. Dollar and to the single European currency that reached its two-decade lows, and also against the British Pound that plunged to all-time lows to the Greenback recently.

Meanwhile, the Franc is expected to rest at the current levels and may even perform a small correction. But within the next few months the Greenback may resume its triumphant strengthening amid expected sharp interest rate hikes by the Fed. The number of experts and investors who expect Fed fund rates to exceed 5% in 2023 is gradually rising and this may push the Dollar to higher levels at some point. Geopolitical and economic tensions are also in favour of the Greenback. So, if the USDCHF continues to hover around parity, the pair may resume climbing to 1.0200-1.0250, the highs range since 2019.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Mark Goichmann
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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