USD/CHF Trading Update: Fed Expected to Cut Interest Rates
- USD/CHF remains feeble near 0.8450 as traders raise the Fed 50 bps interest rate cut for Wednesday’s meeting.
- Investors expect the Fed to cut interest rates by 100 bps this year.
- The SNB is expected to cut its key borrowing rates for the third time in a row.
As the USD/CHF pair continues its losing streak for the fourth trading session, the Swiss Franc remains sluggish near 0.8450. This is mainly attributed to the growing market expectations that the Federal Reserve (Fed) will announce a 50 basis points (bps) interest rate cut during Wednesday’s meeting, putting pressure on the US Dollar (USD).
Factors Driving Market Expectations:
- The sharp decline in the annual US headline Producer Price Index (PPI) data for August, indicating a deceleration in underlying inflation to 1.7%.
- Investors focusing on the Fed’s dot plot and economic projections, with expectations of a 100 bps interest rate cut by year-end.
- Anticipated third consecutive key borrowing rate cut by the Swiss National Bank (SNB) later this month.
Technical Analysis and Outlook:
The USD/CHF pair is approaching horizontal support from the 28 December 2023 low of 0.8333 on a daily timeframe, with bearish short-to-long-term Exponential Moving Averages (EMAs) indicating a downward trend. The 14-day Relative Strength Index (RSI) in the bearish range of 20.00-40.00 further supports a strong bearish momentum.
If the asset breaks below the round-level support of 0.8400, it could target the 28 December 2023 low of 0.8333 and the round-level support of 0.8300. Conversely, a move above the 10-day high of 0.8540 may drive the asset towards the round-level resistance of 0.8600 and the August 20 high of 0.8632.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency, considered a safe-haven asset due to the country’s stable economy and geopolitical neutrality. Here are some frequently asked questions about the Swiss Franc:
1. What Determines CHF Value?
The CHF value is influenced by market sentiment, economic health, and SNB actions. It was pegged to the Euro from 2011 to 2015, causing market turmoil upon removal.
2. Why is CHF a Safe-Haven Asset?
Switzerland’s stable economy, strong export sector, and political neutrality make CHF a preferred choice during market stress.
3. How Does SNB Monetary Policy Impact CHF?
The SNB aims for an inflation rate below 2% and adjusts policy rates accordingly. Higher rates strengthen CHF, while lower rates weaken it.
4. How Do Macroeconomic Data Affect CHF?
Swiss economic data like growth, inflation, and central bank reserves impact CHF valuation. Stable growth and low unemployment are positive for CHF.
5. What is Switzerland’s Dependency on the Eurozone?
Switzerland’s economy heavily relies on the Eurozone, with high correlation between EUR and CHF fortunes, highlighting the importance of Eurozone stability for CHF.
Stay informed about these factors to make informed investment decisions in the USD/CHF pair and understand the dynamics of the Swiss Franc in the global market.