Investing.com – The pair has been on a rollercoaster ride lately, but after a period of strong US dollar, UBS thinks the pair could reach its upper limit.
At 05:20 ET (09:20 GMT), USD/CHF was trading at 0.8650, up 1.7% over the past month.
“In recent quarters, the USD/CHF exchange rate has moved primarily through the USD,” UBS analysts said in an Oct. 18 note. “The state of the U.S. economy and expectations for the Federal Reserve’s monetary policy have been the key drivers.”
The two weak US labor market reports in early August and September led to a significant repricing of the US interest rate outlook, culminating in a 50 basis point Fed rate cut in September. As a result, the USD/CHF fell from 0.90 in July to 0.84 in August and September.
The Swiss National Bank’s (SNB) expectation in September that further rate cuts were in the offing did little to move the pair, the Swiss bank said.
“However, after a much better than expected US labor market report in October, the pair jumped to almost 0.87, with the USD regaining about half of its lost ground.”
The spotlight will be on the upcoming labor market reports to confirm whether October’s strong data was an outlier or a reflection of a very resilient labor market.
However, the print is likely to be heavily influenced by the recent hurricanes in Florida, making it even more difficult for the Fed to interpret the numbers, UBS said. Moreover, the upcoming US elections could lead to additional volatility.
Policy uncertainty could arise if Donald Trump wins, related to his tariff proposal, or if the election is too close and the outcome takes weeks.
“Overall, we believe that the upside potential from here on out is very limited for the USD and there are a number of factors in the coming weeks that should drive the USDCHF exchange rate back down, with previous lows around 0, 84 are being tested,” UBS added.
“We advise clients to reduce or hedge their exposure to the USD at current levels, or in the event that the US elections lead to a higher peak.”
