Swiss Franc ticks up from two-week lows with Fed decision on tap

USD/CHF eases below 0.8300 from 0.8313 highs, but remains 0.5% up on the week so far.
Easing concerns about the AI sector and hopes of a hawkish hold by the Fed are providing support to the USD.
In Switzerland, the ZEW Economic Expectations Index fell to a six-month low in October.

Guillermo Alcala FXStreet

The Swiss Franc (CHF) has retraced previous gains against the US Dollar (USD) on Wednesday and trades practically flat on the daily chart, stronger as investors brace for the Federal Reserve’s (Fed) monetary policy decision, due later in the day. The USD/CHF pair is pulling back from two-week highs above 0.8300, but remains more than 0.5% up on the week, at the 0.8295 area as of writing.

Markets are calm with all eyes on the Fed, which is widely expected to leave its monetary policy unchanged, to assess the impact of the 0.25% rate kike approved in September

Markets will look for hints of a December hike

Chairman Kevin Warsh is unlikely to hint at any particular rate path, but investors will look for evidence of the bank’s commitment to bring inflation to the central bank’s target rate to confirm hopes of another rate hike in December.

Christ Turner, Analysts at ING say that “a little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response,” a backdrop they see as broadly supportive for the Dollar.

The ING expert anticipates that Chair Warsh is unlikely to “tie himself in knots by citing a tightening in financial conditions, having learnt from the unruly market response to his press conference in July.” Nevertheless, the bank assesses that a continued “focus on restoring monetary stability should remain the dominant message and keep the dollar supported.”

In Switzerland, the ZEW Economic Expectations report, released earlier in the day, has shown further deterioration in October, with the Index hitting a six-month low at -15-3 from 2.6 in September. The impact on the Swissie, however, has been muted.

Economic Indicator

ZEW Survey – Expectations

The ZEW Survey Expectations published by the Centre for European Economic Research presents business conditions, employment conditions and other elements affecting the day to day running of a business in Switzerland. Generally speaking, a high reading is seen as positive (or bullish) for the CHF, whereas a low reading is seen as negative (or bearish).

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

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