USD/CHF holds gains above 0.8040 with US GDP and the Fed on tap

The US Dollar steadies near one-month highs against the Swiss Franc, consolidating gains after a 1.3% rally this week.
Hopes of strong US ADP employment and preliminary GDP data are keeping the Dollar's downside attempts contained.
Forex volatility remains subdued on Wednesday, with investors awaiting the US Fed monetary policy decision.

Guillermo Alcala FXStreet

The US Dollar's reversal from one-month highs at 0.8075 against the Swiss Franc has been contained above 0.8040, with the pair consolidating gains after a 1.75% rally over the last three days. The Dollar remains buoyed by US trade deals with some of its main partners and solid macroeconomic figures, yet with investors awaiting the Fed release before placing directional bets.

Before the central bank's monetary policy decision, the US ADP employment and preliminary GDP releases are expected to remain on the same line. Private payrolls are seen increasing by 78,000 in June, while the US is forecast to return to growth, at a 2.4% annualised rate, following a 0.5% contraction in Q1.

These figures are likely to provide further justification for the Federal Reserve to keep pushing back rate cuts until the economic effects of tariffs are clear. The bank is widelñy expected to keep interest rates on hold, but Chairman Powell’s press release will be carefully observed for clues about a September cut.

On the trade front, the latest round of talks between the US and China ended without significant advances, but the positive comments from both sides support the theory of an extension of the trade truce beyond the August 12 deadline. This is another source of support to the Greenback against the safe-haven Swiss Franc.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

Economic Indicator

Gross Domestic Product Annualized

The real Gross Domestic Product (GDP) Annualized, released quarterly by the US Bureau of Economic Analysis, measures the value of the final goods and services produced in the United States in a given period of time. Changes in GDP are the most popular indicator of the nation’s overall economic health. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Bureau of Economic Analysis (BEA) releases the Gross Domestic Product (GDP) growth on an annualized basis for each quarter. After publishing the first estimate, the BEA revises the data two more times, with the third release representing the final reading. Usually, the first estimate is the main market mover and a positive surprise is seen as a USD-positive development while a disappointing print is likely to weigh on the greenback. Market participants usually dismiss the second and third releases as they are generally not significant enough to meaningfully alter the growth picture.

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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