UBS Projects USD/CHF to Reach 0.78 by Year-End

UBS Forecasts Significant USD/CHF Decline

UBS Switzerland projects the USD/CHF currency pair will decline to 0.78 by December 2024. The forecast is primarily based on anticipated US dollar weakness as the Federal Reserve is expected to begin cutting interest rates, leading markets to refocus on economic fundamentals.

Market Overview and Projections

While maintaining its end-of-June and end-of-September forecasts at 0.79, the bank acknowledges the possibility of near-term dollar strength before the decline begins. The medium-term outlook for the dollar is constrained by ongoing diversification away from US assets and the expectation of lower rates from the Federal Reserve. The USD/CHF pair currently trades around 0.79, having retraced to levels seen before recent geopolitical tensions.

Economic Drivers and Policy Impact

Federal Reserve and Swiss National Bank Policies

According to UBS strategists, the case for lower US rates is a key driver for a weaker dollar. In contrast, Switzerland's inflation is projected to rise modestly to 0.7% year-over-year, which remains within the Swiss National Bank's (SNB) target range. This suggests the SNB will not need to raise rates. The SNB has also reiterated its stance against further appreciation of the Swiss franc and its readiness to intervene in currency markets.

Key Levels and Long-Term Outlook

UBS identifies initial resistance for USD/CHF at the 0.805-0.810 level, with support at 0.76. In risk-off scenarios or with further geopolitical escalation, the pair could rise above 0.80. Conversely, persistent long-term headwinds for the dollar, including twin deficits, could push the pair towards 0.75 or lower. The bank's long-term forecast for March 2027 stands at 0.78.

Summary

The forecast points to a strengthening Swiss franc against the US dollar through the end of the year, guided by diverging central bank policies. While short-term volatility is possible, the overarching trend is projected downwards for the USD/CHF pair, with key technical levels providing a framework for market movements.

FAQ

Q: What is UBS's year-end forecast for USD/CHF?
A: UBS forecasts the USD/CHF pair will trade at 0.78 by the end of December.

Q: What is the main reason for the expected decline in USD/CHF?
A: The primary driver is anticipated US dollar weakness resulting from expected interest rate cuts by the Federal Reserve.

Q: What is the Swiss National Bank's position on the franc?
A: The SNB is reluctant to see further appreciation of the Swiss franc and has stated its willingness to intervene in currency markets to manage its value.

Source: Investing.com