Investing.com – The pair has been experiencing periods of ups and downs lately, but following a period of strengthening in the US dollar, UBS believes that the pair may reach the upper limit.
At 05:20 ET (09:20 GMT), USD/CHF was trading at 0.8650, up 1.7% over the past month.
“The USD/CHF rate has moved primarily on the USD side in recent quarters,” UBS analysts said in an October 18 note. “The state of the U.S. economy and expectations about the Federal Reserve’s monetary policy path were key factors.”
Two delicate US labor market reports in early August and September led to a significant reassessment of the US interest rate outlook, culminating in the Fed cutting rates by 50 basis points in September. As a result, the USD/CHF rate dropped from 0.90 in July to 0.84 in August and September.
The Swiss National Bank’s (SNB) recommendation in September that there would be further interest rate cuts did not move the currency pair, the Swiss bank said.
“However, after a much better-than-expected US jobs report in October, the pair rose to almost 0.87 and the US dollar regained about half of its lost territory.”
The focus will be on upcoming labor market reports, which will confirm whether October’s forceful numbers were an outlier or a reflection of a very resilient labor market.
However, the print is likely to be heavily impacted by recent hurricanes in Florida, making it even more arduous for the Fed to interpret the data, UBS said. Additionally, the upcoming U.S. elections may lead to additional volatility.
Political uncertainty could arise if Donald Trump wins due to his tariff proposal or if the election is too close to call and takes weeks to see the results.
“Overall, we believe that the upside potential for the US dollar is very limited and that a number of factors will emerge in the coming weeks that should push the USDCHF exchange rate lower again, testing previous lows around 0.84,” UBS added.
“We advise clients to reduce or hedge their USD exposure at current levels or in case the US elections lead to a sharp increase.”
