USD/CHF trades flat around 0.7960, investors await Fed’s monetary policy outcome
- USD/CHF flattens around 0.7960 as investors shift focus to the Fed’s monetary policy meeting.
- The Fed is expected to cut interest rates by 75 bps in the remainder of the year.
- Swiss producer inflation is expected to have grown by 0.1% in August.
The USD/CHF pair trades in a tight range around 0.7960 during the late Asian trading session on Monday. The Swiss Franc pair flattens as the US Dollar (US) is expected to remain on the sidelines ahead of the monetary policy announcement by the Federal Reserve (Fed) on Wednesday.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades calmly inside Friday’s range around 97.60.
The outlook of the US Dollar remains on the back foot as market experts believe that the Fed will start the monetary-easing campaign on Wednesday and will open the door for more interest rate cuts amid escalating labor market risks.
Analysts at Deutsche Bank have forecasted that the Fed will cut interest rates by 25 bps in all of its three remaining monetary policy meetings remaining this year. The reasoning behind their Fed dovish expectations is slowing job growth in the wake of tariffs imposed by United States (US) President Donald Trump.
Before the Fed’s monetary policy announcement, investors will focus on the US Retail Sales data for August, which will be released on Tuesday. US Retail Sales, a key measure of consumer spending, is expected to have grown at a moderate pace of 0.3% against 0.5% in July.
In Switzerland, investors await Producer and Import Prices data for August, which will be published at 06:30 GMT. As measured by Producer and Import Prices, the producer inflation is expected to have grown by 0.1% after deflating for three months in a row. An increase in producer inflation will offer some relief to Swiss National Bank (SNB) officials, which have been worried about downside inflation risks.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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