USD/CHF: "round" level 1.0000 is broken. What's next?


The dynamics of today's financial market is close to flat. The dollar is mostly holding its recent gains. However, futures for the DXY dollar index are falling at the beginning of today's European session. At the time of writing this article, they are traded near 104.47, continuing their decline for the second trading day in a row after hitting a new high since January 2003 at 105.06 on Friday.

DXY Chart

So far, the decline in DXY is taking place against the backdrop of corrective strengthening of the euro against the dollar (the share of the euro in DXY is approximately 57.6%). Against other major currencies, today's dynamics of the dollar can be characterized as from flat to rising.

In particular, the dollar maintains a positive trend against other traditional defensive assets, gold, yen, franc. While the franc retains safe-haven status, which will continue to support demand for it, the threat of foreign exchange intervention, which the Swiss National Bank has not reported either before or after, is certainly a strong deterrent for the strengthening of the franc. According to the leaders of the SNB, the exchange rate of the franc remains too high. The SNB regularly says that the franc "remains heavily overvalued" and the bank "will take appropriate action if necessary."


At the same time, the Fed leaders are inclined to further tighten monetary policy.

"The (Open Market) Committee is broadly leaning towards considering further rate hikes of 50 basis points over the next few meetings," Fed Chairman Powell said earlier this month. In his opinion, "the American economy is extremely strong and is quite capable of withstanding the tightening of monetary policy."

And last week, Powell reaffirmed that the central bank's main task is to regain control of inflation. He reiterated that if the economic performance is in line with expectations, he considers it appropriate to raise interest rates by 50 basis points at the next two meetings.

Thus, the divergence between the conditional monetary policy curves of the Fed and other major world central banks will increase. We should expect further strengthening of the dollar and, accordingly, the growth of the DXY dollar index.