The Swiss currency has been resilient in the face of firm risk appetite, but underlying yield differentials are likely to limit the potential for further USD/CHF losses unless the ECB strikes a notably hawkish tone on Thursday.
USD/CHF remained on the defensive during US trading on Tuesday with a decline through 0.9550 triggering another round of selling pressure. Overall, the pair declined to 10-month lows around 0.9530.
The Swiss franc was able to gain some fresh support against major currencies as US and European bond yields declined.
Overall risk appetite held firm which should erode support for defensive assets, although gold, the yen and Swiss franc were able to gain some underlying support against a vulnerable US currency.
Trading conditions were little changed ahead of Wednesday’s US open, with the dollar unable to gain more than limited relief.
Although the US hosing data was stronger than expected, the dollar was unable to gain any renewed support and continued to edge lower at Wednesday’s US open.
Bond yields continued to decline which provided significant protection to the Swiss currency even though equity markets maintained a firm tone.
In this environment, USD/CHF was trapped close to 12-month lows just above 0.9530 before a slight recovery.
There will be a significant element of caution ahead of Thursday’s ECB meeting, although no change in interest rates is expected. A relatively hawkish press conference from bank President Draghi would tend to undermine the franc against the Euro, but USD/CHF would still be likely to come under pressure.
A more dovish ECB stance would tend to support the dollar, although with the risk of choppy trading conditions.
USD/CHF Daily Chart