USD/CHF drops to 0.8670 on dovish Fed decision, awaits SNB rate decision

• USD/CHF extends losses as the Fed’s “dot-plot” showed a decline of 50 bps rate projection for 2024.
• SNB is expected to maintain its policy rate until the third quarter of the next year.
• US Dollar loses ground on weaker PPI data for November.

USD/CHF continues the losing streak for the fourth successive day ahead of the Swiss National Bank’s (SNB) Interest Rate Decision, trading around 0.8670 during the Asian session on Thursday. SNB is anticipated to maintain its key interest rate until at least the third quarter of the following year, according to a majority of economists surveyed by Reuters.

Despite a slight easing in price pressures, Swiss inflation is expected to average 1.5% and 1.3% in 2024 and 2025, respectively—down from the 2.2% recorded this year. If these survey projections materialize, the SNB would consider rate cuts after the US Federal Reserve, which is expected to stay on hold until at least July, according to a separate Reuters poll.

However, SNB Chairman Thomas Jordan has expressed a willingness to tighten monetary policy further if deemed necessary, despite the downward trend in inflation.

The Swiss central bank’s commitment to higher-for-longer rates could favor a stronger Swiss Franc (CHF) against the US Dollar (USD). Meanwhile, the Federal Reserve’s decision to keep interest rates unchanged at 5.5% on Tuesday aligns with expectations, exerting downward pressure on the USD/CHF pair.

Furthermore, the Fed’s “dot-plot” reveals a significant shift in Interest Rate Projections for 2024, indicating a 50 basis points decline from 5.1% to 4.6%. This shift suggests a potential move towards a more accommodative monetary policy in the future.

Adding to the Greenback’s challenges is the discouraging Producer Price Index (PPI) data for November, contributing to the overall pressure on the USD/CHF pair. Market attention will turn to the forthcoming release of US Retail Sales data later in the North American session.