|

USD/CHF trades cautiously near 0.8000 as Fed dovish speculation intensifies

  • USD/CHF struggles to hold its key support level of 0.8000 on accelerating Fed dovish bets.
  • The SNB is unlikely to shift to negative interest rates.
  • The US-Swiss trade deal could be announced in two weeks, Bloomberg reported.

The USD/CHF pair trades with caution around 0.8000 during the late Asian trading session on Wednesday. The Swiss Franc pair faces selling pressure as the US Dollar (USD) falls on the back foot amid growing expectations that the Federal Reserve (Fed) could cut interest rates again this year.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges higher to near 99.55. Still, the USD Index is close to its weekly low of 99.30 posted on Tuesday.

The US Dollar declined on Tuesday after the release of the ADP Employment Change four-week average data, which prompted Fed dovish expectations. Private payroll processor ADP reported that employers laid off 11.25K workers each week through late October. Weakening US job trend has raised concerns over the current status of the labour market.

According to the CME FedWatch tool, the probability of the Fed to cut interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has increased to 68% from 62.4% seen on Monday.

Meanwhile, the Swiss Franc (CHF) trades firmly amid receding expectations that the Swiss National Bank (SNB) could shift to negative interest rates. SNB officials have lately expressed confidence that inflation could accelerate in coming quarters.

On the global front, the United States (US) and Switzerland are close to signing a trade deal in two weeks. A Bloomberg’s report showed this week that the US and the Swiss economy could announce a trade deal in two weeks, in which Washington is expected to reduce tariffs on imports from Switzerland to 15%.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

More from Sagar Dua
Share:

Editor's Picks

AUD/USD dips under 0.6850 as Fed-RBA policy divergence widens

The Australian Dollar lost 0.27% against the US Dollar on Wednesday as market participants priced in further Federal Reserve tightening, amid a light economic docket in Australia and the US. The AUD/USD trades below 0.6850.

USD/JPY remains capped below 159.00 amid looming intervention risks

USD/JPY struggles to build on the previous day’s strong gains to a near one-month top as intervention risk supports the Japanese Yen while hopes of a US-Iran peace deal cap the safe-haven US Dollar. That keeps the pair's upside limited below 159.00, for now.

Gold puts the $4,000 mark to the test

Gold now accelerates its daily correction, challenging the key $4,000 mark per troy ounce on Wednesday. The precious metal’s continuation of the downward trend comes against the backdrop of a robust performance of the US Dollar, rising US Treasury yields across the board and rising bets of extra rate hikes by the Fed.

Bitcoin Bull Score falls to 20 as USDT supply shrinks – CryptoQuant
Bitcoin's (BTC) market indicators have turned bearish at the same time, raising concerns that the top crypto could face a deeper correction despite historical similarities to previous market bottoms. In a report published Wednesday, CryptoQuant noted that its Bull Score Index dropped from 90 on October 13 to 20 in less than four weeks, reflecting a sharp deterioration in market conditions.
The Japanese Yen is doing something it hasn't done in ten weeks

USD/JPY climbs above the 159.00 resistance level, extending its advance on Wednesday, and bringing the Japanese Yen back toward its weakest levels in ten weeks amid renewed strength in the US Dollar. The move reflects a sharp repricing of Federal Reserve interest rate expectations following hawkish comments from Fed Governor Christopher Waller and stronger-than-expected US consumer inflation data.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.