Battle in safe haven: USD/CHF currency pair forecast
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Endless green meadows, instagrammable mountains, pristine lakes, idyll and calmness – maybe all these stereotypes from milk chocolate and pretentious expensive watch commercials are exactly what we need in this mad world. Surprisingly, such stereotypes can be seen in the world of forex. The USD/CHF currency pair proves that as in 2023 the Swiss franc, symbolizing tranquility, has outpaced the pompous US dollar. This prompts us to determine which of these safe havens offers greater security, and conversely, where potential risks lie.
Whilst the US economy and the dollar are frequently impacted by events, Switzerland and its economy appear to be a haven where little ever happens. This stability enables the Swiss franc to outperform the world's primary currency. By examining the chart illustrating the movements of the USD/CHF pair over the past six months, we see the dollar has lost approximately 5%.
Numerous economic events affect currency rates, as well as other asset prices. It is crucial to carefully monitor scheduled meetings and sessions in different countries. The economic calendar is a useful tool for forecasting future market movements across different sectors.
The Swiss franc is not the only one that has gained strength against the US dollar; other "European colleagues" like the British pound and the euro, have also surged.
This is primarily due to the fact that the Federal Reserve exhausted almost all possibilities for interest rate hikes. This fact diminishes the appeal of the USD, especially since the European central banks still have room for maneuver. 2022 was a banner for the US dollar but, it seems, the era of big growth has drawn to a close.
Simultaneously, the world economy, especially with the emergence of China, looks less depressive than a year ago. So, investors now have a broader range of investment options – from emerging market currencies to crypto. This is another punch in the stomach for the USD. Additionally, the US banking crisis continues to exert pressure.
The key point here is that the more uncertain the climate around the dollar is, the more profitable it might be for the Swiss franc to secure its position as a safe haven currency, alongside the Japanese yen. Also, the CHF and the JPY are less closely tied to the USD compared to other major currencies. This is an additional advantage in potential negative scenarios for the US dollar, such as a prolonged recession.
Considering all these arguments, one can assume that the franc might become the most rewarding investment of your life. However, you should pay attention to the geopolitical situation in Europe influencing Switzerland and the country's relatively low inflation level, which affords a softer interest rate policy. Plus, the CHF is considered to be a defensive asset when, for example, the euro and the pound may offer greater profit potential.
Complicated, huh? Much like everything unfolding around us… Conducting thorough research is imperative before investing in the franc or any other asset – this is the only way to become a successful investor and trader.