After SNB Decision, Will Swiss Franc Resume its Decline?

Fundamental analysis of Forex market

The Swiss franc is unchanged in Thursday trading. Currently, USD/CHF is trading at 0.9353, down 0.02% on the day.

Swiss franc steady as SNB holds the course

There were no surprises from the Swiss National Bank, which held its policy meeting on Wednesday. As expected, the bank maintained its key rate at -0.75%. The bank tweaked its inflation forecast for 2021 to 0.2%, slightly higher than the 0% forecast back in December. Inflation in 2020 was a negligible -0.7%, so the SNB is not feeling under pressure to adjust interest rates in the foreseeable future.

The SNB is projecting that GDP will expand between 2.5% and 3.0% for 2021, even with an expected decline in GDP in the first quarter. This would mean a return to pre-Covid economic activity in the second half of 2021. Switzerland suffered a decline of 3.0% in growth in 2020 due to the impact of Covid-19, but the export-reliant economy is expected to rebound as the global economy recovers from the economic meltdown caused by Covid.

The Swiss franc has fallen 6.0% in 2021, with half of that slide coming in the month of March. Despite this tumble, the SNB said at its policy meeting that the currency was “highly valued”. This reflects the agenda of the central bank to keep the Swiss franc at low levels by purchasing massive amounts of dollars, in order to protect the Swiss economy, which is heavily reliant on exports, as well as combatting deflation. The Swiss franc has also depreciated against the euro, dropping to a 20-month low recently.

With the SNB keeping low negative rates in place and continuously intervening in forex markets, it’s reasonable to assume that the Swiss franc could continue to lose ground. With the US economy headed in the right direction, investor risk appetite should improve, which is another reason to be bearish on the Swiss franc in the coming months.

USD/CHF Technical

  • USD/CHF faces resistance at 0.9337. This is followed by resistance at 0.9381
  • 0.9231 has been a strong support level since mid-March. Below, there is support at 0.9169