Swiss franc continues to rise

June rollercoaster ride for Swissie

It has been a tale of two Junes for the Swiss franc. USD/CHF rose about 400 points in the first half of the month and breached above the parity line. Since then, it has surrendered almost all of those gains. The highlight was the SNB shocker on June 16^th, when the central bank raised rates from -0.75% to -0.25%, a huge move that was totally unexpected. The rate hike predictably sent the Swiss franc sharply higher, and the currency has continued to strengthen in the second half of June. On Friday, USD/CHF fell as low as 0.9521, its lowest level since April 21^st.

The reason that the SNB raised rates in such dramatic fashion was to keep inflation at bay. Inflation rose to 2.9% YoY in May. This is much lower compared to the US or UK, but marked Switzerland’s highest inflation rate since 1993. The Bank’s rate statement said that further hikes could be implemented in order to stabilize inflation.

The SNB, unlike most major central banks, intervenes in currency markets as it sees fit. The SNB carefully monitors the exchange rate and has intervened in the past when it deemed the Swiss franc’s value as too high, which is detrimental to Switzerland’s export-reliant economy. The SNB decided that the priority was to curb rising inflation, knowing that a sharp rise in interest rates would cause the Swiss franc to dramatically appreciate.

SNB President Thomas Jordan said last week that economic data indicated a need to continue to tighten monetary policy, but said it was unclear when this would occur. The SNB may not be embarking a rate-hike cycle anytime soon, but with a potential rate hike on the table, the Swiss franc has upside risk.

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USD/CHF Technical

• USD/CHF has support at 0.9496 and 0.9412
• There is resistance at 0.9605 and 0.9689

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.