The USD/CHF pair had a mixed performance in 2021 as the world economy emerged from the pandemic. The pair initially dropped to 0.8755 in January and then soared to a yearly high of 0.9472, which was 8.7% increase. It is now trading at 0.9121, which is about 3.72% below the highest level in 2021.
SNB interventions
The Swiss National Bank (SNB) has been a major outlier among major central banks in terms of its currency interventions. The bank, which believes that the Swiss franc is overvalued, continued its interventions by buying foreign currency worth billions.
In the third quarter, the bank bought 2.8 billion francs or about $3.8 billion worth of foreign currency. That brought the total purchases to about 4 billion francs.
The SNB has also taken other measures to devalue the currency. For example, the bank has implemented negative interest rates in a bid to support the economy. In its most recent rate decision, the bank left interest rates unchanged at -0.75% and hinted that negative rates will remain low for a while.
Switzerland has managed to defy the so-called Philips Curve, which states that inflation will keep rising as unemployment rates. While the country’s unemployment rate is slightly below 3%, inflation has remained below 2%. The SNB expects that inflation will rise to 1% this year and 0.3% in 2023. The bank also expects that the country’s economy will expand by 3% this year.
Meanwhile, the USD/CHF pair has declined even after the relatively hawkish stance by the Federal Reserve. The bank expects to end its quantitative easing (QE) in March this year and then start hiking rates in its battle against inflation.
USD/CHF forecast
