Franc rose to the podium. Forecast as of 26.12.2023

Support from the Swiss National Bank and the franc's status as a safe-haven currency allowed it to achieve excellent results in 2023. Will the USDCHF downtrend reverse in 2024? Let's talk about this topic and draw up a trading plan.


Swiss franc fundamental forecast for six months

Having been the G10 best performer during most of 2023, the franc has finally reached its goal. It has strengthened against the US dollar by 7.5%, ahead of second- and third-place finishers, the UK pound, +5%, and the Swedish krona, +4%. Among the thirty most liquid Forex currencies, the Swissie was behind only the Mexican peso (+13%) and the Polish zloty (+10%). What will be with the Swiss currency in 2024?

In the first half of the year, the USDCHF was falling due to expectations of a recession in the US economy. At the end of the year, the main driver of the decline was the Fed's dovish shift. At the same time, the franc received support from the monetary restriction of the Swiss National Bank. The SNB fought inflation in two ways: by raising the main interest rate and by foreign exchange interventions. The idea was that a strong currency prevents imported inflation from entering the country. The central bank achieved its goal. For the sixth month now, CPI has been within the target range of 0%-2%.

As a result, at its December meeting, the SNB lowered its inflation forecasts to 2.1% in 2023, to 1.9% in 2024 and to 1.6% in 2025. Thomas Jordan said that price stability had been achieved, monetary conditions were adequate, and the central bank had no need to hint at monetary policy adjustments. In three months, the regulator will study how the new forecast is being realized.

Dynamics of actual and predicted inflation in Switzerland

Source: Bloomberg.

The last phrase suggests that at its March meeting, the SNB is unlikely to cut the main interest rate from its current value of 1.75%, as expected by the derivatives market. Capital Economics forecasts three acts of monetary expansion in 2024 of a quarter a point each. That's less than the 150-basis-point rate cut by the Fed signaled by CME derivatives. The different speeds of easing the monetary policy of the Federal Reserve and the Swiss National Bank should support the USDCHF downtrend.

At the same time, the SNB has shown that it intends to move away from the policy of a strong franc, which prevents imported inflation from entering Switzerland. According to Thomas Jordan, currency interventions will now be carried out in both directions. Taking into account the sluggish dynamics of the economy, anchored by inflation and the strongest Swiss exchange rate against the euro for eight years, the SNB could start buying foreign currency. This circumstance creates the preconditions for the EURCHF rally.

USDCHF trading plan for the next six months

The USDCHF trend depends on whether the Fed will cut the rate and for what reason. A rise in the US inflation will lure investors back to the dollar, and it will be relevant to buy the pair with targets at 0.872 and 0.886. If the Fed starts monetary easing because of a recession, the pair will be consolidating as both currencies are safe havens. A soft landing, expected by investors, will support the USDCHF downtrend with targets at 0.846 and 0.83.

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.

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