USD/CHF rises toward 0.7950 as FOMC Minutes signal pause in rate cuts
- USD/CHF appreciates as the US Dollar receives support from FOMC Minutes signaling a pause in rate cuts.
- CME FedWatch shows an 85.1% chance of rates staying unchanged in January, up from 83.4% earlier.
- Swiss KOF Economic Indicator rose 1.7 points to 103.4 in December, beating expectations and hitting a September 2024 high.
USD/CHF extends its winning streak for the fourth consecutive day, trading around 0.7930 during the early European hours on Wednesday. The pair appreciates as the US Dollar continues to gain ground after the release of the Federal Open Market Committee (FOMC) December Meeting Minutes on Tuesday.
FOMC Minutes indicated a deeply divided committee, with most participants judging that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions this year to support the weakening labor market.
The CME FedWatch tool shows an 85.1% probability of rates being held at the Fed’s January meeting, up from 83.4% a day earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 14.9% from 16.6% a day ago.
The US Dollar may lose ground amid expectations of two additional Federal Reserve rate cuts in 2026, along with concerns over fiscal deficits and the Fed’s independence. Traders are also closely watching the appointment of a new Fed Chair, with Trump expected to name Jerome Powell’s successor early next year.
Switzerland’s KOF Economic Indicator increased by 1.7 points to 103.4 in December, marking its highest reading since September 2024 and surpassing market expectations of 101.4. The improvement is most pronounced on the production side, where manufacturing-related indicator bundles point to a more favorable outlook.
The safe-haven demand for the Swiss franc (CHF) could rise amid heightened geopolitical tensions, driven by uncertainty over a potential Russia–Ukraine peace deal, renewed tensions in the Middle East, and frictions between the US and Venezuela.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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