The USD/CHF pair experienced a decline of 0.16%, trading around 0.8110 during the European trading session on Thursday after retracting from a 10-month high of 0.8140 reached a day earlier. The overall sentiment surrounding the Swiss Franc appears strong, primarily due to continued strength in the US Dollar (USD).
At this point, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, was down 0.12% near 101.46. Despite this dip, it remains close to its one-year high of 101.80 achieved on Wednesday. Market participants are anticipating that the Federal Reserve (Fed) will implement at least one interest rate increase this year, with the CME FedWatch tool indicating an 82% probability of such an event.
Investors are also looking forward to the upcoming release of the US Personal Consumption Expenditure Price Index (PCE) data for May, scheduled at 12:30 GMT. Meanwhile, in Switzerland, officials from the Swiss National Bank (SNB) continue to advocate for further depreciation of the Swiss Franc, despite it already having weakened by nearly 4% against the US Dollar this month. SNB policymaker Petra Tschudin noted that medium-term inflation pressures remain unchanged, affirming the central bank’s readiness to intervene in the foreign exchange market if required.
In terms of technical analysis, while the USD/CHF pair is currently lower, it retains a bullish near-term outlook, remaining above the 20-day Exponential Moving Average (EMA) at 0.8000. The 14-day Relative Strength Index (RSI) is just shy of the overbought threshold near 69, indicating strong momentum that may lead to a consolidation phase after recent gains. The one-year high at 0.8174 serves as the first significant resistance level; a sustained breach above this could trigger further movement towards 0.8200. Conversely, the 20-day EMA around 0.8000 acts as a crucial support level; a fall below this could lead to declines towards the June 17 low of 0.7910.
The USD is the official currency of the United States and is widely circulated in several other countries. It accounts for over 88% of the global foreign exchange turnover, translating to an average of $6.6 trillion in daily transactions, according to 2022 data. Following World War II, the USD replaced the British Pound as the world’s primary reserve currency. Historically, the US Dollar was backed by gold until the Bretton Woods Agreement of 1971, which marked the end of the Gold Standard.
Monetary policy is the most significant factor influencing the USD’s value, overseen by the Federal Reserve. The Fed’s dual mandates include controlling inflation and promoting full employment, with the adjustment of interest rates serving as its primary tool. When inflation exceeds the Fed’s 2% target, it tends to raise rates, bolstering the USD. Conversely, when inflation falls or unemployment rises, the Fed may lower rates, which can negatively impact the currency.
In more extreme scenarios, the Federal Reserve can resort to printing additional Dollars and employing quantitative easing (QE) to stimulate the economy when credit markets become stagnant. QE was notably used during the Great Financial Crisis of 2008, involving the purchase of government bonds to inject liquidity into the economy, which typically weakens the US Dollar.
Conversely, quantitative tightening (QT) occurs when the Fed ceases its bond purchases and refrains from reinvesting in new bonds as existing ones mature, generally resulting in a stronger US Dollar.
