Combination of Swiss franc strength and US dollar weakness has been fuelling a strong sell-off on USDCHF market since the start of Q4 2023. As US inflation continues to soften, money markets are pricing in more and more Fed rate cuts for 2024. Currently, a total of 150 basis points of easing, or six 25 basis points rate cuts, are priced in for the next year. This is twice as much as projected in the latest FOMC dot-plot (75 basis points). Meanwhile, CHF has been the best performing G10 currency this year and even recent hint from SNB Chairman Jordan that Swiss National Bank may also consider FX interventions that are not limited to selling foreign currencies did not derail its strength. Jordan's remark suggests a significant policy shift as SNB focused on selling foreign currencies in order to support CHF previously. This is a major source of risk for CHF going into 2024.
Taking a look at USDCHF chart at D1 interval, we can see that the pair dropped over 7% snice its early-October low and has broken below the 0.8550 area today, marked with a local lows from July 2023. As a result, the pair reached levels not seen since January 2015. Back then, SNB announced that it decide to abandon policy of containing Swiss franc strength, resulting in a massive jump on CHF market.
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Source: xStation5
