Swiss Franc weakens with SNB policy on the horizon

• USD/CHF surges to near 0.8500 amid a sharp decline in the Swiss Franc as traders brace for SNB’s policy decision.
• The SNB is expected to cut interest rates by 25 bps for the third time in a row.
• Investors expect the Fed to reduce its key borrowing rates further by 75 bps this year.

The USD/CHF pair gains sharply to near 0.8485 in Wednesday’s European session. The Swiss Franc asset strengthens as the Swiss Franc (CHF) performs weakly ahead of the Swiss National Bank’s (SNB) interest rate decision, which will be announced on Thursday.

Economists expect the SNB to ease interest rates further as the annual Consumer Price Index (CPI) in the Swiss economy has decelerated to 1.1% in August. The SNB is expected to cut interest rates by 25 basis points (bps) to 1%. This would be the third straight interest rate cut by the SNB.

Meanwhile, the US Dollar (USD) holds ground near the yearly low even though market participants expect that the Federal Reserve (Fed) will deliver one more larger-than-usual interest rate cut of 50 basis points (bps) in any of the two policy meetings remaining this year. The CME FedWatch tool shows that the Fed could cut interest rates further by 75 bps, a total in November and December meetings.

This week, investors will keenly for the United States (US) core Personal Consumption Expenditure price index (PCE) data for August as it will provide fresh cues on the interest rate outlook, which will be published on Friday.

USD/CHF oscillates in a tight range of 0.8370-0.8550 for almost a month. The asset struggles for direction amid an inventory adjustment process, a phase in which positions are transferred between retail participants and institutional investors.

The asset remains sticky to the 20-period Exponential Moving Average (EMA) near 0.8465, suggesting a sideways trend.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating indecisiveness among market participants.

A recovery move above the monthly high near 0.8550 will drive the asset toward the round-level resistance of 0.8600, followed by an August 20 high of 0.8632.

On the flip side, more downside would appear if the asset breaks below the round-level support of 0.8400, which would drag the major towards the 28 December 2023 low of 0.8333 and round-level support of 0.8300.

USD/CHF four-hour chart