The Swiss franc continued to gain against the greenback yesterday as cautious sentiment in Europe and Asia forced investors to look for safe-haven assets. The US dollar also fell due to the dovish FOMC (Federal Open Market Committee) rate decision, signaling rate cuts in the future. From a high of 0.9782, the USD/CHF pair has declined to 0.9692 in the past 24 hours.
The greenback tried to strengthen yesterday at the beginning of the Asian session, following last week’s sharp decline but did not gather enough momentum due to feeble support from investors and speculators. The Swiss franc’s gain against the US dollar was limited due to the unresolved framework agreement issue between Switzerland and the European Union. In principle, Switzerland opposes the EU framework agreement.
Since the 1972 Free Trade Agreement and the famous referendum in which the Swiss chose not to be a part of the European Economic Area in 1992, Switzerland and the EU have been working closely with more than 20 major sectoral treaties plus over 100 smaller agreements. In 2014, the two parties started discussing a deal that would completely revamp certain mutual contracts–particularly those relating to single market access.
In December 2018, the suggested agreement was revealed. The EU is pressing Switzerland to ink the treaty after years of discussions, but the Swiss government presented the contract to public consultation in the last leg of 2018. Brussels has fixed July 19th as the last date for Switzerland to approve the agreement.
The framework agreement addresses five main topics: people’s freedom of movement shared acceptance of economic norms, agrarian goods, aerial travel, and land transit.
The Swiss are not interested in signing a contract that will allow low-wage EU employees to enter the country. The EU has declined to compromise, saying it will not renegotiate the structure given the June 30th expiry of the stock market equivalence.
The US Federal Reserve stated last week that it is suspending its “patient” interest-rate strategy to monetary policy. Fed Chairman Jerome Powell left the benchmark interest rate unchanged between 2.25% and 2.50% but hinted that the Fed might be moving closer to slashing rates for the first time since December 2016.
During a press conference, Powell said: “Many FOMC participants now see that the case for somewhat more accommodative policy has strengthened.” Notably, for the first time during Powell’s chairmanship, the decision to keep interest rates unchanged received a dissenting vote.
The dovish statement by the Fed Chair and overall uncertainty in the global economic scenario is expected to keep the demand higher for the Swiss franc.
Technically, the USD/CHF pair is moving within a descending channel, as shown in the image below. Additionally, the momentum indicator is also making new lows. As a result, we can expect the currency pair to remain bearish in the short-term.
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