Swiss Franc retreats as US Dollar strengthens before Fed policy decision

• Expectations of unchanged Fed interest rates support USD/CHF ahead of forthcoming economic releases.
• US Treasury demand weakened as sentiment towards AI improved ahead of technology earnings.
• With inflation risks seen as contained, Swiss policymakers expect interest rates to remain unchanged through 2027.

Forthcoming GDP growth figures and the Personal Consumption Expenditures (PCE) price index are in focus as investors seek guidance on the monetary policy outlook. Against this backdrop, USD/CHF is trading near 0.8300 in Wednesday’s Asian session, extending its advance to a fourth consecutive day. The pair is supported by a firmer US Dollar (USD), with markets adopting a cautious stance before the US Federal Reserve’s (Fed) interest rate announcement later in the day.

Markets assign a 92.8% probability to unchanged rates at Wednesday’s meeting, according to the CME FedWatch tool, in line with widespread expectations that the Fed will retain its benchmark target range of 3.75% to 4.0%. The probability of a December rate increase stands at 84.4%. Traders will scrutinise comments from Fed Chair Kevin Warsh for subtle indications of the central bank’s assessment of the economy.

Improved sentiment towards artificial intelligence has meanwhile reduced appetite for safe-haven Treasury bonds. With major technology companies due to report earnings, investors expect fresh evidence of AI-related demand—a significant contributor to US economic growth. This has unwound some of the safe-haven flows prompted by the recent global technology sell-off.

According to the Swiss National Bank (SNB) Meeting Minutes, policymakers acknowledged increasing inflationary pressures but found no evidence of wider spillovers across the economy. They attributed the rise in inflation mainly to more expensive oil and a weaker franc. The SNB left its policy rate at 0%, while Chair Schlegel said overall price stability meant no changes were currently needed. Economists expect rates to stay unchanged through 2027, although financial markets have begun to price in the possibility of an increase in early 2027.

USD/CHF extends gains as UOB questions scope to clear major resistance

The gradual rise in USD/CHF continued at the beginning of the week, UOB Group strategists observe, with the Dollar “rising to a high of 0.8294 before closing at 0.8290 (+0.23%).” They point back to their assessment when the pair traded around 0.8270: “conditions are overbought after the sharp rise over the past two days, but there is scope for USD to test 0.8290,” accompanied by the warning that “a sustained advance above this level is unlikely.”

Although UOB says “downward momentum is starting to slow, and conditions remain overbought,” it notes that the latest advance “is not showing signs of pausing just yet.” Its assessment for the next session is that USD “could edge higher, but any advance is unlikely to reach the major resistance at 0.8320,” while 0.8270 now provides initial support.