The USD/CHF pair is experiencing a slight dip, trading near 0.7920 during Friday’s late Asian session. The Swiss Franc pair is struggling to recover ground after touching a three-week low of 0.7910 on Thursday. This pressure on the pair stems from the US Dollar’s (USD) underperformance, even as market participants have reduced their expectations for an interest rate cut by the Federal Reserve (Fed) at its December policy meeting.
Currently, the US Dollar Index (DXY), which gauges the Greenback’s strength against a basket of six major currencies, is marginally lower, hovering around 99.15. The DXY remains close to its two-week low of 99.00, which was recorded on Thursday.
According to the CME FedWatch tool, the likelihood of the Fed implementing a 25 basis point (bps) interest rate cut to 3.50%-3.75% in December has decreased to 50.7%, down from 63% on Thursday.
This scaling back of dovish Fed bets follows statements from several Federal Open Market Committee (FOMC) members, who have emphasized the importance of a cautious approach to interest rate reductions given that inflationary pressures continue to significantly exceed the central bank’s 2% target.
As St. Louis Fed President Alberto Musalem stated at the Economic Impact & Policy Forum on Thursday, “Policy closer to neutral than modestly restrictive, and the Fed needs to continue to lean against inflation.”
Concurrently, the Swiss Franc is broadly firm, supported by Swiss National Bank (SNB) officials who have voiced confidence in an impending rise in inflation over the coming quarters. This guidance, however, contrasts with the surprisingly negative Swiss Producer and Import Prices data for October. Wholesale inflation fell by a sharper 0.3% month-on-month, exceeding September’s 0.2% decline, and defying economists’ projections for a 0.1% increase.
