Ahead of Fed decision, Swiss Franc edges higher from two-week lows

• USD/CHF retains a 0.5% gain for the week despite retreating from highs of 0.8313 to below 0.8300.
• The USD draws support from receding AI-sector worries and expectations of a hawkish hold from the Fed.
• October saw Switzerland’s ZEW Economic Expectations Index drop to its lowest level in six months.

With a gain of more than 0.5% so far this week, USD/CHF is trading around 0.8295 at the time of writing, having retreated from two-week highs above 0.8300. On Wednesday, the Swiss Franc (CHF) has given back earlier gains against the US Dollar (USD) and is virtually unchanged on the daily chart, though firmer as investors prepare for the Federal Reserve’s (Fed) monetary policy announcement later in the day.

The 0.25% rate rise approved in September is widely expected to be followed by unchanged monetary policy as the Fed assesses its impact. Markets remain quiet ahead of the decision.

Markets Seek Signals of a December Rate Rise

Although Chairman Kevin Warsh is unlikely to signal a specific course for interest rates, investors will scrutinise his remarks for signs of the bank’s resolve to return inflation to its target. Such evidence would reinforce hopes of a further rate rise in December.

A backdrop broadly favourable to the Dollar is how ING analysts, including Christ Turner, view current conditions. They say that “a little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response,”

In the ING expert’s view, Chair Warsh is unlikely to “tie himself in knots by citing a tightening in financial conditions, having learnt from the unruly market response to his press conference in July.” The bank nonetheless believes a continued “focus on restoring monetary stability should remain the dominant message and keep the dollar supported.”

October’s ZEW Economic Expectations Index for Switzerland fell to a six-month low of -15-3, down from 2.6 in September, according to the report published earlier in the day. Despite this further deterioration, the Swiss Franc has shown little reaction.