USD / CHF sees annual lows at 0.8825

• USD / CHF is pressing yearly lows at 0.8825 amid broad USD weakness.
• CHF has been one of the best G10 players in 2020 with the SNB out of ammunition unable to loosen policy as much as other central banks.

He USD/CHF it has been down for most of Tuesday’s session and has recently dipped below 0.8850 having been above the 0.8900 level in the middle of Monday’s session. USD weakness has been the driving force behind the move lower, which has seen the pair lose roughly 40 pips or roughly 0.4%.

The broader risk appetite is mixed / choppy, with US stocks now trading in the red along with the US dollar. The two are generally negatively correlated, implying that trade is currently being distorted by portfolio rebalancing flows for the month, quarter, and year-end. News that Republican Majority Leader in the U.S. Senate, Mitch McConnell, rejected a Senate Democratic request to pass a bill that would transfer an additional $ 1,400 to each American (bringing the total amount sent to every American in the latest batch of Covid-19 aid to $ 2,000) unanimously. Consent has damaged the appetite for risk (as it means there is no swift approval of more fiscal stimulus before the end of the year in addition to the $ 900B already agreed) and has helped the dollar index rally above 90.00 but it has done little to lift USD / CHF.

USD / CHF sees lows for the year, what’s next for the pair?

USD / CHF is pushing the yearly lows set earlier in the month at 0.8820. If the USD continues to experience a broad decline and the dollar index might pull back below the 90.00 level and below the yearly lows around 89.70, then the pair will also hit new yearly lows.

As the end of 2020 rapidly approaches, it is worth remembering that the Swiss franc is actually one of the best G10 results for the year, rising more than 9.8% against the US dollar and only exceeded by SEK. . The EUR is currently on the tail of the Swiss, down just under 9.6% on the year against the US dollar. Perhaps unsurprisingly, the best performing G10 currencies in 2020 have been those in which central banks had little room to lower interest rates beyond their pre-Covid-19 levels.

In fact, while the Fed cut rates from 1.5-1.75% to 0.0-0.25%, the SNB kept rates at -0.75%, the ECB at -0.5% and the Riksbank at 0.0%. Hence, the USD saw the greatest erosion of its rate advantage against such currencies as AUD, NZD, CAD, NOK, and even GBP. JPY is, of course, the exception and is in the middle of the 2020 G10 currency performance chart despite no rate cuts by the BoJ.

Heading into 2021 for the Swiss franc, SNB policy is expected to remain very dovish despite the US designation of Switzerland as a currency manipulator. But since the central bank has practically reached the limits of its power, selling CHF for EUR and USD remains its only viable means of damaging the Swiss Franc.

Given that most expect the dollar to fall further in 2021, there appears to be little the SNB can do to stem the tide of force in the CHF (against the USD anyway). As long as the rate of appreciation of the CHF does not drastically exceed that of the EUR (Switzerland’s main export destination), Swiss exports should not have too much cause for panic and, given that 2021 is expected to be a risk for the year, the likelihood of an outperformance of the safe-haven CHF versus the EUR appears slim.