Swiss Franc lost ground versus the U.S dollar on Thursday, after the Swiss National Bank decided to leave its rates unchanged but reiterated that the central bank would continue to intervene in the foreign exchange market if necessary to cool down an overvalued local currency.
Having to counterbalance the consequences of the Brexit vote, one of which is the appreciation pressure on the franc, Switzerland’s central bank maintained interest rates at a record low of -0.75%. With this, the SNB continues to remain the central bank with the most severe negative interest rate policy out of the major central banks around the world. The SNB also maintained its target range of between -1.25% and -0.25% for the three-month Libor, as expected by market analysts.
In a statement published on Thursday, the central bank said that “The Swiss franc is still significantly overvalued” and committed to interventions to “make Swiss franc investments less attractive, thereby easing upward pressure on the currency”.
One year after suffering a dramatic rise in the CHF exchange rates, when the SNB removed the peg of 1.20 francs per euro, the export-oriented economy was reported to be growing at the fastest pace since 2014. Last Tuesday, data from the State Secretariat for Economic Affairs indicated that the country’s GDP rose by 0.6% in the second quarter following a 0.3% advance in the previous quarter, thanks to rising government consumption and foreign trade.
The SNB stated on Thursday that it expected the economy to accelerate at about 1.5 percent this year, but consumer prices would decline by 0.4% due to the strong franc that has pushed down import costs. Forecasts for inflation in 2017 and 2018 were also trimmed to 0.2% and 0.6%, respectively, from a June prediction of 0.3% and 0.9%.
It is only one week until the widely watched Federal Reserve policy meeting on September 21. With a data-dependent interest rate decision, the market could witness strong volatility in the U.S dollar today, as a number of economic reports are slated to come out at the opening of the U.S session. This will help investors draw a clearer picture of the U.S economic outlook as well as the possibility of a rate hike next week.
August’s retail sales and producer prices, September’s Empire State Manufacturing Index and Philadelphia Fed’s Manufacturing Survey are scheduled for release at 1:30 pm GMT while the industrial production report for last month is due 45 minutes later.
Fig: USDCHF D1 technical chart
USDCHF has been moving sideways for five trading days between the support at 0.97050 and the resistance at 0.97850, after lower highs and higher lows have been formed as the market moves indecisively, with no clear direction. Indicator charts are exhibiting the cautious sentiment in the market with the RSI moving around the neutral 50 line and the ADX down below 20. Traders are waiting for clearer guidance from fundamental factors before entering a trade.
Buy Digital Call Option from 0.97630 to 0.97850 valid until 20:00 GMT September 15, 2016