Swiss Franc Surges, Dollar Falters

The Swiss franc hits a multi-year high, putting pressure on the dollar in thin trade. Stay updated on the latest market developments and currency trends.

The Swiss franc has surged to its highest level against the dollar since 2015, marking a significant milestone for Switzerland's currency. On Friday, the franc reached CHF0.8551 per dollar, its strongest level in almost nine years. Against the euro, the franc also rose to CHF0.94112. This impressive performance has positioned the franc as the top performer among its G10 currency peers this year, driven by the belief that the Swiss National Bank's (SNB) preference for a stronger domestic currency will continue to support its value.

Last week, the SNB reaffirmed its willingness to intervene in currency markets, but also indicated that foreign currency operations could go in both directions following a focus on selling since mid-2022 to minimize inflationary risks. Swiss inflation has remained within the central bank's target range of between 0 and 2% since June, supporting its decision to maintain unchanged rates since its last hike at its quarterly meeting in June. With the economy showing signs of slowing down, markets are anticipating the SNB to commence rate cuts in March.

In contrast, the dollar has been under pressure in holiday-thinned trade, as signs of cooling inflation in the United States are expected to provide the Federal Reserve with room to ease interest rates next year. Meanwhile, the yen has steadied near its recent five-month peak on the prospect that the Bank of Japan (BOJ) could soon signal an end to its ultra-easy policy, which has kept the Japanese currency under pressure for most of 2022 and 2023.

Currency movements were relatively subdued on the day after Christmas, with markets in Australia, New Zealand, and Hong Kong closed for the Boxing Day public holiday. The euro slipped 0.06% to $1.1019 against the greenback, while sterling remained little changed at $1.2701. The Australian and New Zealand dollars hovered near their recent five-month peaks, while the dollar index languished near a five-month low of 101.42 hit last week.

Data released on Friday showed that U.S. prices fell in November for the first time in more than 3-1/2 years, pushing the annual increase in inflation further below 3% and boosting market expectations of an interest rate cut from the Fed next March. This reading came a week after Fed policymakers opened the door to rate cuts in 2024 at the central bank's final policy meeting for the year, a move that drove the dollar lower.

On the other hand, a slew of data released on Tuesday indicated that Japan's jobless rate remained unchanged at 2.5% in November from the previous month, while business-to-business service inflation held steady at 2.3% last month.

The Swiss franc's remarkable performance against the dollar and euro, along with the evolving dynamics of other major currencies, is shaping the global foreign exchange market as we head into the new year.