10.05.202213:50 Forex Analysis & Reviews: USD/CHF: the dollar sets the tone

The US Federal Reserve in its meeting on Wednesday decided to raise interest rates by 0.50% and announced the beginning of a reduction in the balance sheet in the amount of $9 trillion next month. "Inflation is much too high and we understand the hardship it is causing, and we're moving expeditiously to bring it back down," Fed Chairman Jerome Powell said at a press conference following the meeting, adding that "the committee (on open market operations) as a whole is inclined to consider the possibility of further interest rate hikes by 50 basis points during the next few meetings."

Thus, the dollar has every chance to accelerate its growth, primarily due to the toughest policy of the Fed among all the world's largest central banks.

On Monday, against the backdrop of a lean economic calendar, the dollar index (DXY) hit a new 26-month high of 104.20. At the time of this writing, futures for the dollar index DXY are trading near 103.74, maintaining the potential for further growth.

Will there be a correction? It depends on many factors, including economic ones. So far, the US economy looks to be the most stable among the other major economies in the world. "There is a broad sense on the committee that additional 50 basis point increases should be on the table for the next couple of meetings," Powell said last week. "The American economy is very strong and well-positioned to handle tighter monetary policy."

However, other factors, such as geopolitical ones, may also affect the dynamics of the dollar. Now investors prefer the dollar even to traditional defensive assets such as gold, yen, and franc.

As for the latter, it is now actively weakening against both the euro and the dollar.

Following the meeting in March, the Swiss National Bank left its key interest rate and deposit rate at -0.75%, announcing the preservation of a loose monetary policy. The bank's management also reiterated its readiness to intervene in the foreign exchange market. According to the leaders of the SNB, the exchange rate of the franc remains too high. The SNB regularly says that the franc "remains heavily overvalued" and the bank "will take appropriate action if necessary."

While the franc retains 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 meetings of the SNB, dedicated to the issues of monetary policy, are usually held every 3 months.

The next such meeting of the SNB will take place in the second half of June. Much will depend on its results in the dynamics of the franc.

In the meantime, the main tone in the USD/CHF dynamics is set by the dollar, and its total strengthening in the currency market is also reflected in the growing quotes of this currency pair.

As of this writing, it is trading near 0.9940, 25 pips off yesterday's 29-month high of 0.9965. The most important long-term resistance level also passes through this mark, near which a rebound is possible if the dollar starts a downward correction in the market.

Last Friday ended a very volatile week. This week will not be full of economic events, unlike last week. Important economic data are also not expected to be published today.

Nevertheless, market participants will pay attention to the speeches of a number of key figures of the US government and the Fed.

Treasury Secretary Janet Yellen is scheduled to speak at 14:00 (GMT), US President Joe Biden is scheduled to speak at 15:30, and Fed officials Williams, Waller, and Mester will speak at 11:40, 17:00, and 19:00.

An increase in volatility in the quotes of the dollar and, accordingly, the USD/CHF pair is likely at this time, especially if the above persons make unexpected statements.