USD/CHF holds gains above 0.8050 ahead of monetary policy decisions

The US Dollar holds gains above 0.8050 against the CHF with the Fed and the SNB in focus.
The Fed is expected to cut interest rates on Wednesday and hint at a pause afterwards.
The SNB is set to keep rates on hold at 0% and play down speculation about negative borrowing costs.

Guillermo Alcala FXStreet

The US Dollar nudges lower against the Swiss Franc on Tuesday, but is holding most of the gains taken over the last few days. The pair is trading at 0.8065 at the time of writing, with downside attempts contained above 0.8050 so far, and all eyes on the Federal Reserve (Fed) and the Swiss National Bank (SNB) monetary policy decisions, due late this week.

A quarter-point interest rate cut by the Fed on Wednesday is practically discounted, and the US Dollar is drawing some support from investors’ expectations that Chairman Jerome Powell will deliver a hawkish message, dampening hopes of further easing in the near-term.

US President Donald Trump has not missed the opportunity of putting some pressure on the central bank, and stated that the new Fed Chair should support interest rate cuts, in an interview with Politico earlier on Tuesday. The impact on the US Dollar, however, has been minimal.

Later on Tuesday, the ADP will release its weekly Employment Change report, and the US Labour Department will follow suit with the delayed JOLTS Job Openings from September and October. The market is bracing for steady 7.2 million openings in both months, slightly below the 7.22 million seen in August.

On Thursday, the SNB will, most likely, leave its benchmark interest rate steady at the current 0% level, as inflation remains at levels near zero. In the Press conference, SNB Chairman Martin Schlegel is likely to play down the possibility of negative interest rates. Any doubts on that point might send the Swiss Franc tumbling against its main peers.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

GBP/USD surges to multi-day peaks past 1.3250

GBP/USD leaves behind Friday’s small pullback and advances past 1.3250 level, or five-day highs, on Monday. Cable’s upside follows extra losses in the Greenback, while traders continue to assess the geopolitical front and upcoming key events.

EUR/USD softens to near 1.1400 as ECB tightening bets fade

The EUR/USD pair trades with mild losses around 1.1415 during the early Asian session on Tuesday. The Euro softens against the US Dollar as traders reduce their bets on the European Central Bank rate hikes this year.

Gold crashes with Japanese Yen as stops likely triggered

Gold is down nearly 1.50% so far in Tuesday’s Asian trading, sitting at a fresh seven-month low as the key $3,950 psychological barrier gave way amid a renewed wave of selling.

Bitcoin stalls at $60K as buyer conviction fades, Strategy authorizes BTC sales

Bitcoin is trading around the $60,000 level on Monday after a sharp decline last week. With the top crypto struggling to recover, analysts suggest the market remains firmly in defensive territory as investors await stronger signs of demand.

Just like Fed, is BoJ’s independence under threat?

When talking about central bank independence, most of the focus has been on Donald Trump’s pressure on the Federal Reserve. But a similar story, a quieter one for now, seems to be happening on the other side of the Pacific: Japan’s government may be testing the Bank of Japan’s independence.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.