USD/CHF is trading cautiously near 0.8000 as speculation grows about a potential Federal Reserve rate cut. The Swiss Franc is under pressure as more people expect the Fed to lower interest rates this year. Currently, the US Dollar Index is around 99.55, close to its weekly low of 99.30 reached on Tuesday. On Tuesday, the US Dollar fell after the ADP Employment Change report, leading to lower expectations for the Fed. The report showed an average of 11.25K layoffs over four weeks, raising worries about the strength of the job market.

Rising Chance of a Rate Cut

The CME FedWatch tool now shows a 68% chance of a 25 basis points rate cut in December, up from 62.4% on Monday. In contrast, the Swiss Franc remains strong as chances of the Swiss National Bank adopting negative rates diminish. Worldwide, the US and Switzerland are close to a trade agreement, with talks about reducing tariffs on Swiss imports to 15%. The US Dollar remains the most traded currency, involved in over 88% of global foreign exchange transactions, and is influenced by the Federal Reserve’s monetary policies. Generally, quantitative easing weakens the USD, while quantitative tightening strengthens it. With a high likelihood of a Federal Reserve rate cut in December, US Dollar is likely to face continued downward pressure. Recent data supports this view: the October Non-Farm Payrolls report added just 145,000 jobs, and the latest Consumer Price Index dropped to 3.0%, both below market expectations. The CME FedWatch tool now indicates a 68% chance of a rate cut, maintaining bearish sentiment toward the dollar in the coming weeks.

Strong Outlook for the Swiss Franc

On the flip side, the Swiss Franc remains robust. The Swiss National Bank is confident about rising inflation, currently at 1.9%, reducing the likelihood of a shift to negative rates. The upcoming trade deal between the US and Switzerland, expected within two weeks, serves as an additional positive factor for the Swiss economy and its currency. For derivative traders, this situation suggests looking for further USD/CHF weakness. Buying put options expiring in January 2026 could help us profit if the pair declines ahead of the Fed’s December meeting. Implied volatility is likely to rise as that date approaches, making it wise to establish positions now. The 0.8000 level is a key psychological support. Breaking below this level could lead to expedited declines towards lows not seen since the significant currency event of 2015. We might explore bearish risk-reversal strategies, which involve buying put options and financing them by selling out-of-the-money call options. This approach provides an affordable method to position for a continued decline in the pair. Create your live VT Markets account and start trading now.

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