USD/CHF eyes 0.9300 level with Fed and SNB decisions in focus

• USD/CHF consolidates as Swiss Franc stabilizes post-UBS and Credit Suisse merger.
• Anticipation builds for Federal Reserve: 25 bps hike or pause.
• Adversity is likely to remain amid the unfolding banking crisis. 

USD/CHF has entered a consolidation phase this week, with the Swiss Franc finding stability following the merger of UBS and Credit Suisse. After Credit Suisse defaulted amid a liquidity crunch, Swiss authorities intervened and facilitated the UBS takeover of the troubled bank.

Attention has shifted to Wednesday's upcoming Federal Reserve (Fed) policy decision. Investors are divided on whether the Fed will deliver a 25 basis point (bps) rate hike at the forthcoming FOMC meeting.

Notably, the Fed has recently opened its swap line to provide US Dollar liquidity to all central banks in need. Additionally, the Fed has been conducting instant lending operations through its discount window, resulting in a spike in the Fed's balance sheet despite ongoing Quantitative Tightening (QT).

These actions appear contradictory, raising rates while injecting liquidity. However, such a scenario is not unprecedented, as the Bank of England (BoE) has demonstrated in the past. Thus, one cannot dismiss the possibility of similar Fed action.

Although the odds favor a 25 bps rate hike from the Fed, it will be crucial to monitor the central bank's assessment of the underlying banking conditions for the US economy, given the recent failures of commercial banks.

Market pricing had fluctuated dramatically over the past 10 days, with investors initially anticipating a larger half-point rate increase before banking stresses emerged, then at one point expecting rates to remain unchanged. Among economists, those predicting a quarter-point rise do not discount the possibility of a pause.

Following the Fed's decision, markets await the Swiss National Bank's (SNB) policy announcement. The likelihood of a 50 bps rate hike has diminished in light of the Credit Suisse turmoil.

Levels to watch