USD/CHF tests intra-week highs at 0.8070 on generalised Dollar strength
- The US Dollar is outperforming its peers on Wednesday despite concerns about the Fed's independence.
- Governor Cook announced a lawsuit against Trump as a reaction to a presidential order to fire her
- On Thursday, the Swiss Q2 GDP reading is likely to set the near-term CHF direction.
The US Dollar is outperforming its rivals on Wednesday, unfazed by US President Trump’s attempts to influence the Federal Reserve’s decisions. The USD/CHF pair appreciates nearly 0.4% on the day so far, to test intra-week highs at 0.8070.
Trump’s unprecedented attacks on the Federal Reserve’s independence have failed to dent the US Dollar’s strength. The US President attempted to fire Governor Cook, aiming to change the balance of the bank’s monetary policy committee to the dovish side by replacing her with a more dovish-leaning nominee.
Cook refused to resign, as she affirmed, the president has no authority to fire her, and announced a lawsuit against the president, which is likely to extend the conflict.
In the macroeconomic domain, US Durable Goods Orders and the Conference Board’s Consumer Sentiment index beat expectations, easing concerns about a sharp economic slowdown in the third quarter and providing additional support to the US Dollar.
In Switzerland, the focus is on the second quarter’s Gross Domestic Product release, due on Thursday, which is expected to show some deceleration. These figures will be read from the perspective of SNB’s moneary policy and, in that sense, the risk is on a weaker-than-expected reading that might boost hopes of further monetary easing and send the Swiss Franc lower.
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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