The US Dollar is losing value against the Swiss Franc due to growing expectations for Federal Reserve rate cuts. The market predicts an 85% chance of a 25-basis-point cut coming up soon. In Switzerland, a drop in GDP reinforces the idea that the Swiss National Bank will maintain its current policies for a while longer. Currently, USD/CHF is trading lower at about 0.8010, which is a 0.25% decrease for the day. This decline is mainly due to the US Dollar’s weakness as markets look forward to more cuts from the Federal Reserve. Recent US economic reports and comments from officials support speculations about lowering rates at the next meeting.

Federal Reserve Speculation

Speculation around changes in the Federal Reserve’s leadership is also putting pressure on the US Dollar. Kevin Hassett, a possible successor to Jerome Powell, is in favor of easier monetary policy, fuelling expectations for rate cuts by 2026. The US Dollar Index has dropped 0.3% to 99.15, highlighting this trend. In Switzerland, the Franc remains steady despite poor economic data. The GDP for the third quarter fell by 0.5%, worse than the expected 0.4% decline, indicating a slowdown. Experts believe the Swiss National Bank may keep its rate at 0.00% until 2027. Even with the Franc being a safe-haven currency, the decline of the US Dollar still affects the USD/CHF pair. The US Dollar shows different changes against major currencies, performing best against the Canadian Dollar. The heat map shows these changes, illustrating relative currency strengths. Ghiles Guezout wrote this analysis, using his knowledge of market trends. There’s a strong expectation for a 25-basis-point rate cut from the Federal Reserve next week, with probabilities around 85% according to the CME FedWatch tool. This scenario suggests considering trading strategies that could benefit from a continued drop in the USD/CHF. If it breaks below the important 0.8000 psychological level, we may see more selling in the coming days.

Monetary Policy Outlook

This expectation is backed by recent data indicating a cooling US economy. The latest Core PCE inflation for October dropped to 2.8%, making it easier for the Fed to ease policies. This shift is a stark contrast to the rate hikes we saw throughout 2023. On the flip side, the Swiss Franc is struggling with its own economic issues, including the recent 0.5% GDP contraction. Additionally, November’s inflation was only 1.1%, reinforcing the idea that the Swiss National Bank will keep its policy rate at zero for a while. Thus, the current movement in USD/CHF is more about the US Dollar’s weakness than any real strength in the Swiss economy. Given the high certainty about the Fed’s upcoming decision, implied volatility on USD/CHF options is likely high. This makes selling premium strategies appealing, such as using a bear call spread to bet on a downturn. This strategy would profit if the pair falls or doesn’t change much, while also benefiting from the expected drop in volatility after the Fed’s announcement. Looking toward 2026, speculation about a more dovish leadership change at the Fed adds to the bearish outlook for the dollar. This means any strength in the USD might be taken as a selling opportunity. We are closely monitoring the next US nonfarm payrolls report to see if any weakness in the labor market supports this easing trend. Create your live VT Markets account and start trading now.

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