USD/CHF rebounds near 0.8760 as US Dollar improves before Fed decision

• USD/CHF halts a two-day losing streak ahead of Fed policy decision.
• SNB is widely anticipated to hold its interest rate at 1.75% following the recent downbeat inflation.
• Investors await Fed Chair Jerome Powell’s comments to gain insights into the interest rates trajectory.

USD/CHF hovers around 0.8760 during the Asian trading hours on Wednesday, snapping two days of losses as the US Dollar improves on upbeat US bond yields. The Swiss National Bank (SNB) is anticipated to keep its policy rate steady at 1.75% in Thursday’s meeting, particularly in light of the recent easing of Swiss inflation in November.

The upcoming Monetary Policy Assessment in the Quarterly Bulletin will offer valuable insights into the SNB’s outlook, providing a medium-term conditional inflation forecast.

The US Dollar Index (DXY) moves on an upward trajectory, approaching the 104.00 level, supported by higher yields on both the 2-year and 10-year US bond coupons, standing at 4.73% and 4.20%, respectively, by the press time.

The cautious approach of market participants ahead of the Federal Reserve’s policy decision indeed introduces an element of uncertainty that could potentially exert downward pressure on the Greenback, consequently impacting the USD/CHF pair. While the expectation is for the Federal Open Market Committee (FOMC) to maintain its current policy stance, the focus on cues regarding potential rate cuts in 2024 adds a layer of intrigue for investors.

The significance of Federal Reserve Chair Jerome Powell’s comments becomes even more pronounced, as they hold the potential to shape market expectations and influence movements of the USD/CHF pair.

The US Dollar’s recent bout of high volatility, fueled by the release of the Consumer Price Index (CPI) figures, reflects the market’s reaction to the 3.1% year-on-year increase, as expected in November against the 3.2% readings previously. The parallel uptick in the US Core CPI at 4.0% aligns with market expectations, indicating a degree of predictability in inflation trends.

As market participants await the release of the US Producer Price Index (PPI) for November, the focus shifts to expectations of a growth reduction to 1.0% yearly. Projections for an easing Core PPI at 2.2%, compared to the 2.4% prior, add another layer to the market’s anticipation.