.jpg)
Inflation has been in the 0-2% range for nine months and is confidently moving towards its lower limit, so Swiss National Bank officials should consider monetary easing. Let’s discuss this topic and make up a trading plan for USDCHF.
Weekly Swiss franc fundamental forecast
The USDCHF bulls have the right to be offended by the Swiss National Bank, which did its best to support its own currency. Thanks to the growth in the scale of foreign exchange transactions from 22.3 billion CHF in 2022 to 132.9 billion CHF in 2023, the franc became the best G10 performer last year. However, a sharp decline in foreign currency purchases from 37.6 billion CHF to 20.3 billion CHF in the fourth quarter marked the rejection of previous policies by SNB officials.
Dynamics of SNB foreign exchange transactions
Source: Bloomberg.
In 2024, without the central bank’s support, the Swis franc dropped against the US dollar by 5.7% and became the second outsider after the Japanese yen among the G10. In addition, there are rumors in the market that the SNB will begin to ease monetary policy earlier than other regulators. Seven out of 32 Reuters experts believe that the Swiss central bank will reduce its main interest rate from 1.75% to 1.5% at the March 21 meeting.
Theoretically, this is possible since inflation has been within the target range of 0-2% for nine months now and continues to fall towards its lower limit. In February, consumer prices rose by 1.2%, which is the lowest level since October 2021. However, SNB officials pursued an active policy of franc strengthening in order to slow inflation. If they start monetary easing, it will push down Swissy even more and risk accelerating inflation.
For this reason, most Bloomberg experts predict the first reduction in borrowing costs in June. After the next two, in September and December, the key rate will drop from 1.75% to 1%.
Dynamics and forecasts of the SNB key rate
Source: Bloomberg.
On the contrary, the opinions of economists surveyed by Reuters were divided. 14 voted for June, 11 for the third quarter, and 7 for March. The median estimate assumes two acts of monetary expansion by the SNB in 2024. This is less than the December FOMC forecasts for the Federal funds rate and the derivatives market’s expectations of the Fed’s three steps toward monetary easing.
However, over the next 48 hours, the situation may change dramatically. The Fed’s reluctance to change anything in its old estimates and Jerome Powell’s previous mantra about the imminent start of monetary expansion will keep the USDCHF inclined to consolidate in the range of 0.875-0.89. In this case, little will depend on the Swiss National Bank. The massive sell-off in the US dollar will help the franc recover slightly.
Weekly USDCHF trading plan
If, on the contrary, the Fed changes its December forecasts, expecting rates at 4.9% or higher by the end of the year, and the SNB unexpectedly eases monetary policy, USDCHF will soar to 0.91. Maintaining the SNB’s previous dovish monetary policy will allow the pair to reach the previously announced targets of 0.891 and 0.9015. In both cases, keep your focus on purchases.
Price chart of USDCHF in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
