The dollar index (DXY) strengthened at the beginning of today's European session, continuing its growth since last June and coming close to the next "round" mark of 102.00.
The growth of the DXY continues mainly due to the fall against the euro and the pound, whose share in the DXY index is approximately 58% and 12%, respectively.
The dollar is also growing against other European currencies, in particular, the Swiss franc, which is also included in the basket of 6 currencies that make up the dollar index. Its share in DXY is approximately 4%.
Although the franc enjoys the status of a defensive asset and is strengthening against other major currencies, it continues to weaken against the US dollar. Thus, the USD/CHF pair today updated another high since July 2020, exceeding 0.9600.
The statistics released today also turned out to be not in favor of the franc, indicating a decrease in the surplus of Switzerland's foreign trade balance in March to 2.988 billion francs from 5.882 billion francs in February, which also turned out to be worse than the forecast decline to 4.890 billion francs.
Tomorrow (at 08:00 GMT), the ZEW investor expectations index will be published, assessing the business climate, the situation on the employment market, and other aspects that affect the daily conduct of business in Switzerland, and on Friday (at 07:00 GMT), the KOF leading indicators index, which is considered an indicator of economic stability in Switzerland. Both indicators are likely not to cause a strengthening of the franc, as they are expected to be weak (-9.1 and 99.3 after -27.8 and 99.7, respectively, in the previous month).
On Friday (08:00 GMT), the speech of Swiss National Bank Chairman Thomas Jordan is also scheduled. Investors will be waiting for signals regarding the future plans of the SNB monetary policy. The central bank of Switzerland consistently advocates a soft monetary policy in the country, and the exchange rate of the national currency has traditionally been considered "overvalued."
Following the results of its March meeting, the SNB left the key interest rate and the deposit rate at -0.75%, declaring the continuation of a soft monetary policy. The bank's management also reiterated its readiness to intervene in the foreign exchange market. According to the SNB leaders, the franc rate remains too high. The central bank regularly states that the franc "remains highly overvalued" and the bank "will take appropriate measures if necessary."
Although the franc retains its 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 to the strengthening of the franc.
The soft tone of Jordan's speech and the propensity to continue the ultra-loose monetary policy of the SNB will negatively affect the franc.
The main tone in the dynamics of the USD/CHF pair is currently set by the dollar. Market participants are waiting for the start of the May meeting of the Fed. No one doubts that at the May 3-4 meeting, the Fed will raise interest rates by 50 basis points at once. Moreover, some market participants and economists are making bolder forecasts that the interest rate will be increased by 0.75% or even 1.00%.
As you know, in March, annual inflation in the US hit a record high of 8.5%, and Fed Chairman Jerome Powell last week confirmed that interest rates would be raised by half a percentage point in May.
Many economists now fear that a tighter Fed tightening cycle could send the economy into recession, and consumers are already worried about the state of the economy. Yesterday, Cleveland Federal Reserve Bank President Loretta Mester said she did not want to "shock the economy" by raising the key rate by 75 basis points at a meeting in May. "I favor a more methodical approach rather than a shock of a 75-basis point. I don't think it's needed with what we're trying to do," Mester said in an interview with the media.
Today, market participants will pay attention to the Census Bureau report on orders for durable goods and capital goods at 12:30 GMT. This indicator reflects the value of orders received by producers of durable goods and capital goods (capital goods are durable goods used to produce durable goods and services) involving large investments. Forecast for March: +1.0% (durable goods orders), +0.5% (capital goods orders excluding defense and aviation) after falling -2.1% and -0.2% in February, respectively. This is slightly positive data for the dollar. But the data better than the forecast will provide the dollar with more significant support.