The USD/CHF pair has dropped to around 0.8000 as the US Dollar slips from its monthly high of 0.8030. The minutes from the Federal Open Market Committee (FOMC) suggest more interest rate cuts from the Federal Reserve this year, potentially lowering the Federal Fund Rate to 3.6% by the end of the year. The US Dollar Index is down 0.1% at about 98.70, having recently approached 99.00. This decline coincides with a political crisis in France, affecting the dollar’s strength.

Traders Confident in Upcoming Rate Cuts

According to the CME FedWatch tool, traders are optimistic about another rate cut at the next Federal Reserve meeting, predicting a 78.6% chance of a cut by December. Fed Chair Jerome Powell’s speech at the Community Bank Conference will be closely watched. In Switzerland, there are concerns regarding the Swiss National Bank’s potential move to negative interest rates. SNB Chairman Martin Schlegel has raised issues about inflation and how negative rates might affect pensioners and financial firms. The US Dollar, as the main global reserve currency, is significantly affected by the Federal Reserve’s monetary policies. Changes in interest rates, along with quantitative measures like easing or tightening, can greatly impact the dollar’s value, either strengthening or weakening it based on economic conditions. Recent FOMC minutes support our belief that more interest rate cuts are likely starting in 2025, potentially beginning later this month. This easing policy contrasts with the Swiss National Bank’s cautious stance on negative rates, creating a divergence between the two central banks that could further weaken the USD/CHF pair.

Diverging Monetary Policies of the Fed and SNB

The Fed’s dovish outlook is backed by recent economic data. September’s Non-Farm Payrolls report showed hiring had slowed to 150,000, much lower than expected, marking the second month of downturn. Additionally, the latest core PCE inflation rate dropped to 2.8%, giving the Fed a solid reason to consider rate cuts. Conversely, inflation in Switzerland has remained surprisingly high, with September’s rate steady at 1.8%, well within the SNB’s target range. This supports Chairman Schlegel’s warnings about the negative effects of further rate cuts, providing strong backing for the Swiss Franc. For derivative traders, this environment presents an opportunity to buy USD/CHF puts with November and December 2025 expiries. With the Fed’s plans becoming clearer, implied volatility might remain low, making it a cost-effective way to bet on a potential dip below 0.8000. We anticipate movement toward the 0.7900 support area in the coming weeks. We have seen this scenario before, recalling the Fed’s shift to easing in 2019, which caused a prolonged period of dollar weakness against major currencies. Currently, the combination of slowing US employment data and decreasing inflation resonates with that situation. History indicates that once the first rate cut occurs, the dollar’s momentum typically trends downward. The recent Commitment of Traders (CFTC) report reinforces this outlook, showing that leveraged funds have increased their net short positions against the US Dollar for the third week in a row. This indicates that significant market players are already preparing for further dollar weakness. It appears that the most likely direction for USD/CHF is downward. Create your live VT Markets account and start trading now.

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