The USD/CHF exchange rate has plunged as the US dollar index (DXY) crashed to its lowest level in months and as traders moved to the safety of the Swiss franc. It retreated to a low of 0.8750 on Friday, its lowest level since November last year. It has crashed by 4.3% from its highest level this year.
Swiss franc as a safe haven
The Swiss franc has surged against the US dollar and other currencies because of its role as a safe haven.
This role has grown in the past few weeks because of the actions by Donald Trump, which have shocked the business community.
Trump has implemented large tariffs on the biggest US trading partners like Canada, Mexico, and China.
These tariffs risk moving the global economy to a recession this year as logistical challenges rise.
The Swiss franc is often seen as a safe haven asset because of Switzerland’s neutrality on key issues. Switzerland is also one of the strongest economies in Europe, with its trade surplus rising.
The USD/CHF exchange rate also retreated after Switzerland published low inflation numbers. According to the statistics agency, Swiss inflation plunged to the lowest level in four years.
The headline CPI rose 0.3% in February, helped by cheaper imports as the Swiss franc strengthened. These numbers mean that the Swiss National Bank may need to slash interest rates again later this year.
Some analysts worry that the SNB may need to push interest rates negative in a bid to devalue it. The bank likes a weaker currency to help manufacturers sell their goods to Europe cheaply.
The market now anticipates that the SNB will slash rates from 0.50% to 0.25% in the next meeting this month, and to zero in June.
Read more: USD/CHF: Here’s why the Swiss franc is firing on all cylinders
US inflation data ahead
The next key catalyst for the USD/CHF pair will be the upcoming US consumer inflation data scheduled on March 11.
Economists expect these numbers to show that the headline consumer inflation dropped from 0.5% in January to 0.3% in February on a YoY basis. Core inflation is expected to remain unchanged at 3.3%.
Most economists expect that US inflation will keep rising in the next few months because the US has added tariffs for key goods. For example, an iPhone price will need to rise by at least 25% because it is manufactured in China.
These expectations have pushed many analysts to predict that the Federal Reserve will slash interest rates three times later this year.
USD/CHF technical analysis
The daily chart shows that the USD/CHF exchange rate has been in a strong downward trend in the past few days. It has crashed from a high of 0.9200 to 0.8800, the lowest swing since December 10 last year.
The pair has dropped below the 50-day and 200-day moving averages. Additionally, the Awesome Oscillator has turned red in the next three consecutive days, while the Relative Strength Index (RSI) has moved below 50.
Therefore, the USD to CHF pair will likely continue falling as sellers target the next key support at 0.8610, the lowest swing on November 5. The stop-loss of this trade will be at the psychological point at 0.900.
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