USD/CHF Currency Pair Analysis

Introduction 2 Discussion and Analysis 2 Movement in USD/CHF Exchange Rate 2 Purchasing Power Parity 2 Prediction of Changes in Currency Exchange Rates 3 Application of Purchasing Power Parity 4 USD/CHF Movement 4 Forecasting of USD/CHF 7 Conclusion and Recommendations whereby 7 References 9 Introduction A Bilateral Exchange Rate is a common way for quoting a currency which well involves two common pair of currencies. The currency base which has been for example we have well considered the changes in the USD/CHF for a trend period

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(USD/CHF Currency Pair Analysis).

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Table of Contents
Introduction......................................................................................................................................2
Discussion and Analysis..................................................................................................................2
Movement in USD/CHF Exchange Rate.....................................................................................2
Purchasing Power Parity..............................................................................................................2
Prediction of Changes in Currency Exchange Rates...................................................................3
Application of Purchasing Power Parity......................................................................................4
USD/CHF Movement..................................................................................................................4
Forecasting of USD/CHF............................................................................................................7
Conclusion and Recommendations..................................................................................................7
References........................................................................................................................................9

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Introduction
A Bilateral Exchange Rate is a common way for quoting a currency which well involves
two common pair of currencies. The Bilateral Exchange Rates are typically quoted in response to
the US Dollar that is USD $ as the currency is the most traded currency on a global scale. In
majority of the time period the central bank or the federal bank would be in one side of the
relationship and they would be usually displaying numbers using the three letter symbols. The
currency base which has been for example we have well considered the changes in the
USD/CHF for a trend period of one year and relevant changes from 1st January 2019 to 31st
December 2019 would be considered for analysis purpose (Yahoo Finance 2020).
Discussion and Analysis
Movement in USD/CHF Exchange Rate
The USD/CHF Exchange rate in the trend period from 1st January 2019 to 31st December
2019 had shown a fall in the value of USD Currency and in turn rise in the value of the CHF
Currency. This get to clearly show that the CHF Currency in turn has appreciated and in relative
terms the USD Currency has degraded (Theories of Exchange Rate Determination |
International Economics 2018). The currency exchange rate for the USD/CHF Currency was
around 0.99 on 1st January 2019 which ended up to around 0.97 on 31st December 2019. The
change in the currency will be well highlighted with the help of the Purchasing Power Parity
whereby changes in the inflation rate has been well considered for analyzing the movement in
the USD/CHF Currency Exchange Rate (USD to CHF Forecast: up to 0.966! Dollar to Franc
Analysis, Converter, Live Exchange Rates and Prediction, Long-Term & Short-Term Forex (FX)
Prognosis 2020).
Purchasing Power Parity
The purchasing power parity is the most common and popular technique that is widely
used for the purpose of valuation of exchange rate in terms of changing price that has been well
referred with the help of inflation data point for both the economies. The PPP is a key
macroeconomic term which is well used as a metric for comparing the economic productivity

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and the standards of living between countries (Gilboa and Mitchell 2020). The PPP as a key
economic theory well compares different set of currencies with the help of common basket value
in both the economy. When considered through this concept both the currency are or should be
in an state of equilibrium that is well known as currency value at par, when the given set of
basket of goods is well priced at the same value in both the country, when considered into their
exchange rates. The PPP is a key popular metric that is well used by macro-economic analysts
for the purpose of well comparing the various currencies with the help of a basket of goods
approach (McKinnon and Ohno 2016). The concept of PPP well allows the economist for
comparing the productivity levels and standard of living between the two set of countries that are
considered (Arize 2020).
In order to well calculate the relative version of the PPP we can still do the same with the help of
the following formula:
 S: P1/P2
 Whereby;
 S: The exchange rate of currency 1 with respect to currency 2
 P1: Cost of Good of X in Price Currency 1
 P2: Cost of Good of X in Price Currency 2
It is important to note that in every three years of time period the world releases a set of report
that well compares the productivity and growth of the various countries in relation to PPP and
US Dollar. In relation both the International Monetary Fund (IMF) and the Organizations for
Economic Cooperation and Development uses the weights based on the metric of PPP for well
making various predictions and recommendations to the economic policies. Now these
recommended economic policies can have an immediate or short term impact on the financial
markets. Forex traders in general uses the PPP for well identifying currencies which are
potentially undervalued or overvalued in terms of currency.
Prediction of Changes in Currency Exchange Rates
The currency exchange rate forecasted for the exchange pair can be well linked with a set
of theories whereby we can well relate the movement of the currency with the movement or
changes that have been observed in the inflation data for the US Economy and Switzerland
Economy (Chinn 2019). The historical changes in the exchange rate would be well observed and

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changes in the currency for the trend period would be well related with the Internal Parity
Condition that is Purchase Power Parity. Now as evaluated in the historical set of data that has
been collected for the currency pair of USD/CHF that the USD has depreciated and CHF has
appreciated in value terms. The same would be well linked with the changes that has been
observed in the inflation data points in this periods.
Application of Purchasing Power Parity
The Purchasing Power Parity would be well looking at prices of the goods in various
different countries and is regarded as one of the widely techniques for forecasting the exchange
rates. In accordance with the underlying principles of the PPP it is clearly stated that a pencil in
Switzerland, should be well equal to the same price in the United States of America after well
accounting various factors like the current exchange rate and excluding external costs like
transactions and shipping costs that would be influencing the cost (Bahmani-Oskooee et al.,
2017). In other words or simple terms the principle well states that there should be no arbitrage
opportunity for someone who is well willing to buy inexpensive set of pencils in one set of
country and then sell the some in another country in order to book profits. The approach of PPP
well forecast that the exchange rate would be well changing to offset the changes in the price
level that is well caused due to inflation in accordance with the underlying theory explained. In
order to well materialize the above contents and theory we can well refer to the data point
collected, where we have well make the key set of assumptions as follows:
 The changes in the currency value or the currency pair analysed that is USD/CHF is
affected primarily due to a number or a range of multifactorial factors which includes
changes in interest rate, inflation rate and other business and economy conditions. Out of
which we have well considered that inflation data plays a key role in well explaining the
changes observed in currency pairs (Iyke and Odhiambo 2017).
 There are other factors which one can well explain the changes in the exchange rate but
considering a single theory that is Purchase Power Parity has been well considered for
analysis purpose.
USD/CHF Movement
The underlying principle and approach for the PPP well forecast that the analysed pair of
exchange rate is expected to well change for offsetting the price level change that would be due

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to inflation based on the given set of underlying principles. Now as the data point says that in the
month of January to February the expected fall in the inflation was expected to be around 2%
that is from the level of 1.551% to 1.520% in the (US Economy Prices - Inflation (CPI) - OECD
Data 2020). While on the other hand, the expected rise in the inflation in Switzerland Economy
in the same time period was expected to rise by around 3%. Keeping the above data points the
differential value is around 1% and the currency well showed a movement that is the currency
pair well moved from USD/CHF 0.99 to USD/CHF 1.00 (USD/CHF - Live Rate, Forecast, News
and Analysis 2020). The changes when denominated in percentage terms well goes to show a
movement of about 0.70%. So, the USD Currency appreciated in this one month of time frame
due to lower that, expected inflation or due to fall in the inflation rate which well allowed the
economies currency that is USD to appreciate with respect to the CHF Currency.
On other hand with the changes that have been observed in the inflation data points
between the two economies, the respective changes were observed in the currency value of
USD/CHF. For instance in the given data point when the increase in the inflation was relatively
more in the Swiss Economy in response to the US Economy then the currency value of CHF
depreciated thus bringing down the currency rates of USD/CHF from 1.00 to 0.99 in the period
March 2019. On an overall basis, it is important to note that the respective changes in the
inflation was higher for the CHF Currency on a comparative basis which lead to a significant
volatile movement in the currency of the CHF for the time period analysed. The inflation rate on
an overall basis in the Swiss Economy was around 0.56% as on 1st January 2019, which well,
increase to around 2.02% in the time period of 31st December 2019. While considerably the US
Economy also had experienced an increase in the inflation but not at a rapid faster rate as
compared to the Swiss Economy. The inflation rate in the US Economy was around 1.55% in
January 2019 which well increased to around 2.487% as on December 2019. The increase in the
data points well explains the movement in the currency and this has been the key reason why the
US Currency on a real term basis has appreciated when compared with other set of currencies.
The data point extracted for the changes observed in the trend period are as follows:
USD/CHF Data LOCATION INDICATOR FREQUENCY TIME Value Change (%)
Date Close Change (%) CHF CPI Monthly 2019-01 0.560
1/1/2019 0.99 CHF CPI Monthly 2019-02 0.579 3%
2/1/2019 1.00 0.70% CHF CPI Monthly 2019-03 0.729 26%
3/1/2019 0.99 -0.59% CHF CPI Monthly 2019-04 0.708 -3%

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4/1/2019 1.02 2.49% CHF CPI Monthly 2019-05 0.634 -10%
5/1/2019 1.01 -1.22% CHF CPI Monthly 2019-06 0.600 -5%
6/1/2019 0.98 -3.04% CHF CPI Monthly 2019-07 0.312 -48%
7/1/2019 0.99 1.37% CHF CPI Monthly 2019-08 0.318 2%
8/1/2019 0.99 0.02% CHF CPI Monthly 2019-09 0.148 -53%
9/1/2019 0.99 0.10% CHF CPI Monthly 2019-10 -0.253 -271%
10/1/201
9 0.99 -0.18% CHF CPI Monthly 2019-11 -0.131 -48%
11/1/201
9 1.00 1.09% CHF CPI Monthly 2019-12 0.156 -219%
12/1/201
9 0.97 -3.13% CHF CPI Monthly 2020-01 0.202 30%
LOCATION INDICATOR FREQUENCY TIME Value Change (%)
USA CPI Monthly 2019-01 1.551
USA CPI Monthly 2019-02 1.520 -2%
USA CPI Monthly 2019-03 1.863 23%
USA CPI Monthly 2019-04 1.996 7%
USA CPI Monthly 2019-05 1.790 -10%
USA CPI Monthly 2019-06 1.648 -8%
USA CPI Monthly 2019-07 1.811 10%
USA CPI Monthly 2019-08 1.750 -3%
USA CPI Monthly 2019-09 1.711 -2%
USA CPI Monthly 2019-10 1.764 3%
USA CPI Monthly 2019-11 2.051 16%
USA CPI Monthly 2019-12 2.285 11%
USA CPI Monthly 2020-01 2.487 9%

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10/27/2018 12/16/2018 2/4/2019 3/26/2019 5/15/2019 7/4/2019 8/23/2019 10/12/2019 12/1/2019 1/20/2020
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
0.99
1.00
0.99
1.02
1.01
0.98
0.99 0.99 0.99 0.99
1.00
0.97
USD/CHF Data
Forecasting of USD/CHF
The above explanations and analysis done well shows that the analysis carried out for the
USD/CHF Currency for the historical trend period of one year whereby relevant changes in the
currency in relation to inflation was noted. In order to well predict the changes the same can be
well illustrated with help of changes in inflation dominating the changes in the value of currency
pair. If the prices in the US are expected to well increase in the time set of one year by over say
4% and on the other hand the expected rise in the Swiss Economy would be only around 2%
(USD CHF Chart - Dollar Franc Rate — TradingView — India 2020). The absolute difference
in the inflation data point, between these two set of countries would be as follows:
Inflation Difference: 4%-2%: 2%.
The rapid increase in the inflation range in the US Economy well says that the prices of
products are expected to increase relatively at a faster rate than the prices prevailing in the Swiss
Economy. In the given set of situation we can well use the theory and application of Purchase
Power Parity would well forecast that the depreciation that would be observed in the U.S Dollar
would be approximately by around 4% for well keeping the prices of product between both the
countries at a equal possible rate or value (USD CHF News - FXStreet 2020). Now if the current

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exchange rate as on 31st December 2019 was around 97cents of US Dollar for one 1CH, then the
forecasted exchange rate in accordance with the PPP would be as follows:
New Exchange Rate USD/CHF (1+0.02)+(US$ 0.97 per CHF 1)
= US $0.9894 per CAD $1.
The above estimated figures well shows that in order to get 1 Currency of CHF
previously an investor had to give around 0.97 Cents, however with the rapid increase in the
inflation in the US the currency pair rate would be around USD/CHF: 0.9894.
Conclusion and Recommendations
The analysed currency set of USD/CHF with the help of International Parity Conditions
that is the Purchasing Power Parity were effective in well forecasting the exchange rate the
bilateral exchange rate. The historical trend and data points collected for the currency has well
highlighted and given us the key form of analysis that have well shown how inflation has been
the factor in response to the changes that has been observed in the currency value. It is worth to
note at the same time that the movement of the currency is well dependent on a set of multifactor
and the same is well dependent on other key factors also like interest rate, general macro and
micro economic conditions and other business related factors which well, play a key and a
crucial role in the movement of the exchange rate.

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References
Arize, A.C., 2020. Purchasing power parity in developing countries: Evidence from conventional
and fractional cointegration tests. International Journal of Banking and Finance, 2(1), pp.29-43.
Bahmani-Oskooee, M., Chang, T., Chen, T.H. and Tzeng, H.W., 2017. Revisiting purchasing
power parity in Eastern European countries: quantile unit root tests. Empirical Economics, 52(2),
pp.463-483.
Chinn, M.D., 2019. Purchasing Power Parity and Real Exchange Rates. In Oxford Research
Encyclopedia of Economics and Finance.
Gilboa, S. and Mitchell, V., 2020. The role of culture and purchasing power parity in shaping
mall-shoppers’ profiles. Journal of Retailing and Consumer Services, 52, p.101951.
Iyke, B.N. and Odhiambo, N.M., 2017. Foreign exchange markets and the purchasing power
parity theory: Evidence from two Southern African countries. African Journal of Economic and
Management Studies, 8(1), pp.89-102.
Kuck, K., Maderitsch, R. and Schweikert, K., 2015. Asymmetric over-and undershooting of
major exchange rates: evidence from quantile regressions. Economics Letters, 126, pp.114-118.
Manahov, V., Hudson, R. and Gebka, B., 2014. Does high frequency trading affect technical
analysis and market efficiency? And if so, how?. Journal of International Financial Markets,
Institutions and Money, 28, pp.131-157.
Manzur, M., 2020. Exchange rate volatility and purchasing power parity: does euro make any
difference?. International Journal of Banking and Finance, 7(1), pp.99-118.
McKinnon, R.I. and Ohno, K., 2016. 7 Purchasing power parity as a monetary. The Future of the
International Monetary System: Change, Coordination of Instability?: Change, Coordination of
Instability?, p.42.
Prices - Inflation (CPI) - OECD Data 2020. Available at: https://data.oecd.org/price/inflation-
cpi.htm (Accessed: 6 March 2020).

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Theories of Exchange Rate Determination | International Economics 2018. Available at:
http://www.economicsdiscussion.net/foreign-exchange/theories-foreign-exchange/theories-of-
exchange-rate-determination-international-economics/30637 (Accessed: 6 March 2020).
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https://in.tradingview.com/symbols/USDCHF/ (Accessed: 6 March 2020).
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(Accessed: 6 March 2020).
USD to CHF Forecast: up to 0.966! Dollar to Franc Analysis, Converter, Live Exchange Rates
and Prediction, Long-Term & Short-Term Forex (FX) Prognosis 2020. Available at:
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USD/CHF - Live Rate, Forecast, News and Analysis 2020. Available at:
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Yahoo Finance 2020. Available at: https://finance.yahoo.com/quote/CHF%3DX/history?
period1=1546300800&period2=1577750400&interval=1mo&filter=history&frequency=1mo
(Accessed: 6 March 2020).