The USD/CHF exchange rate continued its recent upward trend, reaching its highest level since June last year as the spread between the US and Swiss interest rates continues to widen. It jumped to 0.8262, up by over 8.7% from its lowest level this year.
Swiss National Bank interest rate decision
The USD/CHF pair will be in the spotlight this week as the Swiss National Bank (SNB) delivers its interest rate decision on Thursday. Economists expect the bank to maintain interest rates at 0% in this meeting.
This decision comes at a time when the Swiss economy is seeing modest inflation. A report showed that the headline consumer price index (CPI) rose 0.80% in August from 0.40% in July.
Swiss inflation is expected to continue rising because of the ongoing energy shock in the region. For example, diesel prices in the country have jumped to a record high of CHF 2.41, and the surge is continuing. Petrol prices have also continued rising this month because of the ongoing US-Iran war.
Still, the SNB will likely maintain interest rates unchanged so that it can devalue its currency. As a net exporter, the central bank tends to prefer a weaker Swiss franc, since this makes its products relatively cheaper.
Federal Reserve may keep hiking rates
The USD/CHF pair has also remained in an uptrend because of the relatively stronger US dollar. The greenback jumped after the Federal Reserve delivered its interest rate decision.
As was widely expected, Kevin Warsh and the team decided to hike interest rates by 0.25% to between 3.75% and 4%. Most importantly, officials signaled that they will continue hiking this year to combat the elevated inflation.
Traders on Polymarket and other prediction marketplaces suggest that the bank will hike either in its October or its December meeting. If this happens, it will bring rates to between 4% and 4.25%.
These actions have a major impact on the USD/CHF pair since the spread between the US and Switzerland will continue widening. This makes it one of the most popular pairs among carry trade investors.
A carry trade is a situation in which investors borrow money from a low-interest-rate currency and then invests in a high-rate one. This pair has become popular now that the US and Japan are hiking interest rates.
USD/CHF technical analysis
USD/CHF chart | Source: TradingView
The daily chart shows that the USD/CHF pair has been in a strong bull run in the past few months from a low of 0.7600 in February to a high of 0.8262. It formed an ascending channel and recently moved below its upper side.
The pair is attempting to retest the crucial support level of 0.8207, its highest level on July 29. It remains above the 50-day and 100-day moving averages.
Therefore, the pair will likely continue rising as bulls target the key resistance level of 0.8350. This view will be confirmed if it moves above the upper side of the channel at 0.8300.
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