USD/CHF bounces from 14-year lows after Fed rate cut
- Swiss Franc weakens as USD/CHF rebounds after Fed-driven volatility.
- A balanced message from Chair Powell, coupled with stronger-than-expected US data, helped the Greenback regain traction.
- Investors are now turning their attention to the Swiss National Bank’s upcoming policy meeting on 25 September.
The Swiss Franc (CHF) weakens against the US Dollar (USD) for a second consecutive day on Thursday, with USD/CHF extending its recovery after a volatile midweek reaction to the Federal Reserve’s (Fed) interest rate decision. At the time of writing, the pair is trading around 0.7920, up nearly 0.40% on the day.
The immediate reaction to the Fed’s first rate cut of 2025 was a brief dip in the Greenback to its lowest level since February 2022, with USD/CHF sliding to fresh 14-year lows near 0.7829 on Wednesday before staging a sharp rebound. The central bank lowered the federal funds rate by 25-basis-point (bps) to 4.00%-4.25%, a move widely expected and already fully priced in by markets.
Fed Chair Jerome Powell described the move as a “risk-management cut,” pointing to rising downside risks in the labor market but warning that inflation “remains somewhat elevated.” He reiterated that policy will remain data-dependent, signaling flexibility rather than a rapid easing pivot. The balanced message helped limit Dollar's downside and reinforced its rebound after the knee-jerk dip.
The Fed’s updated Summary of Economic Projections (SEP) and dot plot suggested a cautious easing cycle. Policymakers projected the policy rate to fall toward 3.6% by year-end, implying around 50 bps of additional cuts this year. The addition of Governor Stephen Miran helped tilt the median projection lower. Notably, expectations for further easing came despite unchanged inflation and unemployment forecasts and a slightly stronger growth estimate.
On Thursday, stronger-than-expected US data gave the Dollar an additional boost. Weekly Initial Jobless Claims dropped to 231K, below the consensus forecast of 240K and down from the prior week’s upwardly revised 264K. Meanwhile, the Philadelphia Fed Manufacturing Survey surged to 23.2 in September, far exceeding expectations of 2.3 and sharply higher than August’s -0.3.
Looking ahead, the Swiss National Bank (SNB) meets on 25 September, with markets widely expecting policymakers to hold the policy rate at 0.00% following June’s cut. Inflation has remained subdued within the SNB’s 0-2% target range, while the strong Franc continues to act as a disinflationary force via cheaper imports. Officials have signaled a “high bar” for reintroducing negative rates, though risks tied to global trade, external demand, and further currency appreciation remain in focus.
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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