The US dollar rallied nicely during the Friday session as traders are worried about the Swiss National Bank, and the running to the US dollar for safety in war.
USD/CHF
The US dollar has rallied quite nicely during the trading session on Friday, as despite the fact that both of these currencies, the US dollar and the Swiss Franc, are considered to be safe haven currencies, the US dollar is significantly outperforming due to the escalating conflicts in the Middle East. This could continue to be the overall attitude and thought process of this pair for the foreseeable future.
Investors are favoring the US dollar because the US dollar represents the United States, which is a net energy exporter, making it more resilient to the current oil price shock.
The Swiss have inflation that’s nearly flat at 0.1% last month, putting immense pressure on the Swiss National Bank. The market is a little bit concerned that the Swiss National Bank might intervene in the forex market to weaken the Franc to avoid further deflation.
Monetary Policy Divergence and Yield Gaps
The rising US Treasury yields are widening the gap with Swiss rates and therefore, with the Federal Reserve expected to hold rates next week, it gives more of a carry trade flavor to this pair. You get paid to hold this position on the long side.
We broke above the recent spike during the trading session on Friday, and it looks like we could go looking at the 0.7950 level. Short-term pullbacks should continue to see the 0.78 level as a bit of a floor. This is an area that I think we are looking at as a potential area of intervention if the Swiss choose to do so. However, as things stand currently, its likely that the Swiss will be able to let the market do its work for itself.