On Tuesday, the Swiss Franc (CHF) has weakened against the US Dollar (USD), with the USD/CHF pair slightly up, trading around 0.8178 in the Asian market. The weaker Swiss Franc comes as the US Dollar shows strength, fueled by expectations that the Federal Reserve (Fed) will raise interest rates during its policy meeting on Wednesday.
Currently, the US Dollar Index (DXY), which measures the dollar’s performance against six key currencies, is up 0.1%, hovering near 99.58.
FOMC set to raise rates for the first time since 2023 as market watches for Warsh’s insights
Analysts at Brown Brothers Harriman (BBH) predict that the FOMC will end its series of five consecutive meetings without a rate change, suggesting that “the FOMC is likely to implement a 25 basis point hike to a target range of 3.75%-4.00% on Wednesday, marking its first increase since July 2023.” They argue that persistent inflation above targets and a stable job market warrant this adjustment, noting that current market positioning indicates about a 90% probability of the hike.
As the market braces for this tightening of monetary policy, experts view the monetary policy statement and Fed Chairman Kevin Warsh’s press conference as crucial for determining the future trajectory of the US Dollar.
In this context, BBH also highlighted that “the vote distribution, revised Summary of Economic Projections (SEP), and Warsh’s media address will influence how the market reacts,” as investors look for clues on future policy directions.
Turning to the Swiss Franc, financial markets are predicting that the Swiss National Bank (SNB) will maintain its course of monetary easing and keep interest rates at 0% in its upcoming policy meeting.
Nomura expects SNB to maintain zero interest rates
Analysts at Nomura believe that the Swiss monetary policy is unlikely to shift, suggesting that “in Switzerland, we foresee no rate changes for the foreseeable future, given the low inflation and the SNB’s caution about the potential negative repercussions of a negative rate.” They see little reason for the SNB to alter its stance, especially with low price pressures and the risks associated with moving back into negative interest rates reinforcing a steady approach.
USD/CHF Technical Overview
Looking at the daily chart, the USD/CHF is trading at 0.8179. The pair remains above the 20-day exponential moving average (EMA) at 0.8111, indicating a supportive short-term structure and suggesting a positive bias as prices stabilize above this level. The Relative Strength Index (RSI) is about 63, reflecting positive momentum without reaching overbought levels yet, which hints that bullish momentum may continue but isn’t overstretched.
If prices move down, the 20-day EMA at 0.8111 stands as the initial key support level. A close below this would likely diminish the current positive sentiment and could trigger a deeper pullback towards previous lows. However, as long as the pair stays above this moving average and the RSI holds in the upper half of its range, downward movements might attract buyers, keeping the near-term outlook generally positive despite a lack of clearly defined resistance levels.
(The technical analysis in this article used assistance from an AI tool. Know more.)
Frequently Asked Questions about the Federal Reserve
Monetary policy in the US is guided by the Federal Reserve (Fed), which has two main objectives: to ensure price stability and promote full employment. The primary mechanism it uses to reach these goals is adjusting interest rates. When inflation rises too quickly above the Fed’s 2% target, it typically increases interest rates, which raises borrowing costs and strengthens the US Dollar (USD) as it makes investment in the US more appealing to international investors. Conversely, if inflation drops below 2% or unemployment rises significantly, the Fed may decrease interest rates, which would typically weaken the dollar.
The Federal Reserve (Fed) holds eight policy assessment meetings each year. During these gatherings, the Federal Open Market Committee (FOMC) examines economic conditions and makes decisions regarding monetary policy. The FOMC comprises twelve Fed officials, including the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four other regional Reserve Bank presidents who rotate on an annual basis.
In extreme circumstances, the Federal Reserve may implement a policy known as Quantitative Easing (QE). QE involves significantly increasing the availability of credit in a struggling financial system. This unusual measure is employed during crises or periods of very low inflation, such as during the Great Financial Crisis in 2008. It entails the Fed printing more dollars to purchase high-grade bonds from financial institutions, which often has a weakening effect on the US Dollar.
Quantitative tightening (QT) is the opposite of QE, where the Federal Reserve halts its bond purchasing from financial institutions and does not reinvest the principal from maturing bonds to acquire new ones. This process generally supports the value of the US Dollar.
