USD/CHF stalls below 0.7940 in a calm New Year session
- USD/CHF's recovery from 0.7860 stalls below 0.7960 on Friday.
- In the US, the S&P Global Manufacturing PMI figures will grab the attention today.
- The Swiss KOF Leading Indicators point to a stronger growth in the next quarters.
The US Dollar is trading practically flat against the Swiss Franc, right below the 0.7940 line, ahead of the US session opening on Friday, The pair has edged up from three-month lows at the 0.7860 area in late December, but it closed the 2025 year with a more than 12% decline.
A combination of market concerns about Trump’s trading policies, with signs of lower economic growth and high inflation in the US economy, and the unprecedented attacks from US President Donald Trump on the Federal Reserve, has weighed heavily on the US Dollar over the last months.
Fed easing hopes keep US Dollar rallies limited
The US central bank cut rates by 25 basis points in each of the last two monetary policy meetings and is projecting another rate cut in 2026. Apart from that, Chairman Jerome Powell ends his term in May, and Trump will likely replace him with a more dovishly leaning profile, which is likely to be announced in the coming weeks. This keeps investors confident in a steeper monetary easing cycle.
Recent US macroeconomic figures, however, have been fairly positive. U.S. Initial Jobless Claims dropped unexpectedly by 16K to 199K in the week of December 26, from the upwardly revised 215K in the previous week. Previously, Pending Home Sales rose at their highest pace in the last three years.
Later today, the US S&P Global Manufacturing PMI is expected to confirm a moderate slowdown of the sector’s business activity. Investors, however, are likely to wait for the key December Non-farm Payrolls report, which has been delayed to next week, for a better assessment of the Fed’s rate path.
performance
In Switzerland, the KOF Leading Indicators revealed an unexpected improvement, to 103.4 in December, from 101.7 in December, its highest level in more than one year, hinting at a stronger growth ahead. The KOF Swiss Economic Institute underscored the strong performance of the manufacturing and construction sectors, although it warned about signs of weakness in demand-side indicators.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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