Is There Much Room For Profits With The USD/CHF Pair?

The USD/CHF currency pair has a 52-week range of 0.7406 on the low-end and 1.0328 on the high end. Now that the Fed has hiked interest rates by 25-basis points, we are starting to see some patterns taking shape in the currency markets. For example, everyone expected emerging market currencies to fare poorly in the run-up to the Fed rate hike, and in the aftermath. Generally speaking, this has held true.

As a case in point, traders placing put options on the South African Rand, Turkish lira, the Russian ruble, the Brazilian real and Indian rupee will be well pleased with their decisions to go short on EM currencies in dollar pairs. But when it comes to developed country currencies like the Swiss franc, things are a little less clear. The G10 currencies, which include: the US dollar, the British pound, the Australian dollar, the Canadian dollar, the euro, the New Zealand dollar, the Swedish krona, the Norwegian krone, the Japanese yen and the Swiss franc, will react differently to EM currencies with the rate hike.

Speculation about Dollar Gains following the Rate Hike

In the run-up to the Fed rate decision, approximately 80% of investors, traders and analysts expected the Fed to hike interest rates. The dovish move to increase interest rates by just 25-basis points sets the stage for future rate hikes in 2016. That the markets were spot on resulted in a rather timid appreciation of the USD against the G10 currencies. We could have seen a situation similar to the one where the ECB acted less than what was expected, and led to a rally in the euro. With the Fed decision, most everybody got it right, and the consensus was that a 25-basis point increase to 0.50% would result. That came to pass.

The impending Fed decision was well and truly priced into dollar strength for quite some time. As such, we have not seen much upward movement in the currency cross exchange rates with the USD and other currencies. There is concern that a readjustment process may take place and it will not bode well for several G10 currencies like the New Zealand dollar or the Australian dollar. The Japanese yen and the euro will likely rally on the back of the Fed rate decision.