The Swiss Franc hit a new record against the US Dollar on Tuesday during the European trading session. The USDCHF pair plummeted almost 100 pips to bottom at 0.8744 from an opening level of 0.8842.
The Swissy was boosted by the greenback’s weakness due to markets expectations that the US Federal Reserve will not tighten monetary policy any time soon.
The Federal Open market Committee will hold a two-day meeting starting today and so all eyes will focus on the press conference Federal Reserve Chairman Ban Bernanke will give after the meeting. This will be the first regularly scheduled news briefing by a Fed Chief in the US history. Investors will look out for any hints in his wording that may give an indication on the direction of interest rates.
A Commerzbank analyst You-Na Park commented that “If the Fed remains rather dovish as expected and says it will continue to buy U.S. assets, that will be negative for dollar.”
Meanwhile, it is quite evident that the Swiss National Bank will raise interest rates earlier than the Fed.
The Swiss economy is clearly doing well as data indicated, with low unemployment, a booming real estate market and generally high consumer confidence. This gives perfect conditions for a rate hike.
However, so far the Swiss National Bank has so far seemed reluctant to tighten monetary policy in order to prevent boosting the already-strong franc. Any more appreciation in the currency will have a detrimental effect on Swiss exporters.