USDCHF continues to weaken after SNB raised rates earlier in the month



The correlation coefficient between USDCHF and the spread between the US and Swiss 10-year notes has risen to 0.76 (bottom chart on the left). The increase in correlation started on 16 June. The top chart on the left shows a significant drop in the spread matched by a decline in the USDCHF, the middle chart on the left (red arrows).

The SNB raised its Policy rate by 50 bps, from -0.75% to -0.25%, on 16 June. This move is the central bank's first increase since 2004. Moreover, it had been at -0.75 for nearly six and a half years. I.e. it is significant because the economics have changed enough for the SNB to act. However, we believe this to be secondary.

The day before, on the 15 June, the Fed increased the rates by 75 bps. Higher than the previously communicated 50bps and the most aggressive since 1994. Fed members also indicated a much faster cycle of increases, with a terminal rate of 3.4%.

Given the vast chasm between the SNB and Fed, we believe the widening 10-year spread to be significant. Our interpretation is that the market is growing wary of recession risk in the US. To this end, the US 10-year Treasury is pulling back more than the Swiss 10-year bond (charts on the right). The reaction of the US Treasury, in particular, on 16 June is telling in this regard (top blue arrow). Moreover, the CHF has traditionally been a haven and is likely a beneficiary of the market concerns. Therefore, USDCHF will be a currency pair to keep an eye on. However, we urge caution as the SNB has a history of directly intervening and will be watching the CHF appreciation carefully.

Why Trade with FXCM

Commission free with fast, efficient execution.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

${} / ${getInstrumentData.ticker} /

Exchange: ${}

${} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.