The US dollar has drifted a little bit lower early on Thursday, as trading continues to follow interest rates.
USD/CHF
The US dollar has drifted a little bit lower during trading on Thursday to break down below the 0.7775 level just barely, but it has, an area that's been kind of important recently. All things being equal, this is a market that is following the 10-year yield at the moment and that of course has been dropping as traders continue to pay attention to headlines coming out of the Middle East based on the prospects of the United States and Iran finally coming to some type of peace agreement.
If that does in fact come to fruition, what's ironic about this is that it's very likely we will see the US dollar turn around and really start to rally against the Swiss franc as the interest rate differential, despite the fact that it would probably shrink then, is still going to be massively in favor of the US dollar. Furthermore, the Swiss franc is considered to be a safety currency, and we may see a little bit of running away from safety assets at least in the short term.
Interest Rate Differentials and Central Bank Intervention
I don't necessarily think this is a market that's going to move rather quickly. I just think it is a market that probably needs to revert to the norm that it typically will see. And by that, I mean that as long as there's no real problem out there, you should at least in theory see the Swiss franc weaken. It's also worth noting that the Swiss National Bank is more than willing to intervene if it gets too strong.
I'm still looking for a bit of a bounce here. I need to see the market clear the 0.78 level and then I might have a go at this. I get paid at the end of every day. It softens the blow if I do lose, and if interest rates continue to move the way they have, it still makes for a positive swap. Over the longer term, that will end up being the big driver. After all, we have the jobs number on Friday and if that suggests that the Fed has to stay tight regardless, it doesn't really matter what the headlines are going to say in the Middle East, at least not from a longer-term perspective.