USD/CHF gains as US-Iran stalemate keeps Dollar supported, Fed in focus
- USD/CHF edges higher as US-Iran uncertainty keeps risk sentiment fragile and supports the US Dollar.
- US data mixed as ADP softens while consumer confidence beats expectations.
- Traders await the Federal Reserve’s interest rate decision due on Wednesday.
USD/CHF edges higher on Tuesday as uncertainty around US-Iran efforts to end the war keeps risk sentiment fragile, supporting demand for the US Dollar (USD) while the Swiss Franc (CHF) struggles to gain despite its safe-haven appeal, amid Swiss National Bank (SNB) warnings of readiness to act against excessive currency moves.
At the time of writing, USD/CHF is trading around 0.7895, up 0.50%. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.68, gaining 0.20% on the day.
The geopolitical backdrop remains in focus as efforts to revive talks between Washington and Tehran show little progress. US President Donald Trump said on Tuesday on Truth Social that Iran had informed the United States it is “in a state of collapse” and wants the Strait of Hormuz reopened as soon as possible.
This comes after Iran proposed a new plan to the US to reopen the Strait of Hormuz and end the war, while leaving nuclear negotiations for a later stage. However, the proposal is unlikely to gain traction in Washington, with Donald Trump and his officials reportedly skeptical of Tehran’s offer, as Iran’s nuclear program remains the main sticking point.
With no signs of talks in the near term and the Strait of Hormuz still largely disrupted, Oil prices remain elevated, fueling inflation risks. Against this backdrop, markets expect the Federal Reserve (Fed) to delay interest rate cuts, which in turn lifts US Treasury yields and further supports the Greenback.
Attention now turns to the Federal Reserve’s monetary policy decision on Wednesday, where rates are widely expected to be held steady in the 3.75%-3.50% range. Markets will parse remarks from Fed Chair Jerome Powell for signals on the future path of interest rates.
On the data front, the ADP Employment Change 4-week average eased to 39.25K from 40.25K previously. However, consumer sentiment remained resilient, with the Conference Board’s Consumer Confidence Index rising to 92.8, beating expectations of 89 and improving from the previous 91.8 (revised to 92.2).
(This story was corrected on April 28 at 15:50 GMT to say that the Federal Reserve’s interest rate is expected to be held in the 3.50%-3.75% range, not 3.75%-4.50%.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Vishal Chaturvedi
FXStreet
I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.
