USDCHF Analysis – December-11-2023

The Swiss franc has recently weakened toward 0.88 against the U.S. dollar, a shift from its four-month peak of 0.87 on December 1st. The currency’s depreciation is linked to a series of softer economic indicators in Switzerland, contrasting sharply with the economic outlook of the Swiss National Bank (SNB) and the U.S. Federal Reserve.

USDCHF fundamental analysis

USDCHF Fundamental Analysis – 4H Chart

Economic Indicators and Policy Outlook

Bloomberg – In the U.S., robust labor data has emerged, challenging the Federal Reserve’s anticipation of rate cuts in the early part of the year. This rich data has contributed to the strengthening of the U.S. dollar. Meanwhile, Switzerland is facing economic challenges. The unemployment rate in the country has climbed to a nine-month high, and other leading indicators are signaling a slowing economy.

Adding to the SNB’s dovish stance, November saw headline inflation in Switzerland fall to a two-year low of 1.4%, significantly below the expected 1.7%. Moreover, the core inflation rate has remained below the 2% target for seven consecutive months. These factors together paint a picture of an economy that is not heating up as quickly as some might have hoped.

Swiss Franc’s Overall Performance and SNB’s Role

Despite these developments, the Swiss franc is on track to end 2023 stronger against the dollar and the euro. A critical factor in this overall yearly performance is the SNB’s depletion of foreign exchange reserves. The central bank’s foreign currency reserves dropped to a six-year low in November, indicating a significant intervention in the currency market.

Economic Impact Assessment

The weakening of the Swiss franc in the face of soft economic data can have mixed implications. On one hand, a weaker currency can boost exports by making Swiss products more competitive internationally. On the other hand, it can increase the cost of imports, potentially leading to higher inflation. The SNB’s active role in managing the franc’s value also highlights the delicate balance central banks must maintain in influencing economic outcomes.

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