USD/CHF was trading at 0.7980, up 0.10% today. This reflects mixed reactions to US inflation data and ongoing worries about the Federal Reserve’s independence. The US Consumer Price Index (CPI) increased by 2.7% year-over-year in December, matching both November’s figures and market expectations, while core CPI, which excludes food and energy, held steady at 2.6%, coming in below expectations. The monthly changes were 0.3% for headline CPI and 0.2% for core CPI, mainly driven by rising shelter costs. This indicates a slow disinflation process, suggesting little immediate change in the Fed’s monetary policy. There is a 95% chance that interest rates will stay the same in January, with the possibility of a rate cut in March dwindling.

Labour Market and Central Bank Independence

The labour market shows a slight improvement, with the ADP reporting a gain of 11,750 private jobs. However, the US Dollar faces challenges from non-economic factors, including a criminal investigation into Fed Chair Jerome Powell. This raises concerns about the independence of the Federal Reserve. Credit rating agencies, like Fitch and S&P Global Ratings, are closely watching the situation, emphasizing the need for the Fed’s credibility. In this context, the Swiss Franc is seeing more demand as a safe haven. On that day, the US Dollar performed well against the Japanese Yen. Looking back to January 2025, we faced stubbornly stable US inflation and increasing political pressure on the Federal Reserve. This created a mixed outlook for the US Dollar, keeping USD/CHF around the 0.8000 mark. These themes have changed over the past year, and our approach must evolve too. The disinflation trend has become clearer since the early 2025 reports. Recent December 2025 figures show core CPI has dropped to 2.2% year-over-year, down from 2.6% last year. This decline puts pressure on the Fed to start easing its policy. As a result, expectations for monetary policy have shifted significantly. The CME FedWatch tool, which showed almost no chance of a rate cut in March last year, now indicates a 70% chance of a 25-basis point reduction by March 2026. This growing certainty of upcoming rate cuts may limit the US Dollar’s potential to rise.

Swiss National Bank and Policy Divergence

On the other side, the Swiss National Bank (SNB) has already made a move. In September 2025, the SNB cut its key policy rate to 1.00% to reduce the Franc’s strength, which was driven by US political uncertainty last year. Now, both central banks are leaning dovish, but the Fed has yet to take action. This policy divergence suggests that traders should consider option strategies that capitalize on increased volatility in USD/CHF. The timing of rate cuts between the Fed and the SNB will likely lead to sharp fluctuations in the pair over the next few months. Buying straddles or strangles for the second quarter could help capture potential price swings as the market processes these central bank decisions. The growing institutional risk premium on the US Dollar, which developed throughout 2025, is still a concern. While the investigation into the Fed Chair has concluded, ongoing discussions about fiscal discipline continue to affect sentiment. Positive economic data for the US may not strengthen the dollar as effectively as it has in the past. Create your live VT Markets account and start trading now.

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