USD/CHF ticks up above 0.7700 with Fed’s minutes in focus
- USD/CHF edges up above 0.7700 but remains trapped within the weekly range.
- Trading volumes remain subdued, with investors awaiting the Fed's minutes.
- The Swiss Franc has been vulnerable since the release of Swiss CPI data last week.
The US Dollar (USD) posts moderate gains against the Swiss Franc (CHF) on Wednesday, with price action returning right above the 0.7700 line at the time of writing. The pair, however, remains trapped within a broadly 70-pip range between 0.7660 and 0.7730, consolidating losses after dropping more than 5% in late January.
Most major currencies have been moving within previous ranges in the first half of the week, with trading volumes subdued amid the Lunar New Year holidays in Asia. Investors in Europe and the US are shifting their focus to the minutes of the last Federal Reserve (Fed) meeting, which will be released later on Wednesday and may provide additional clues about the central bank’s easing calendar.
The Fed left its benchmark interest rate unchanged at the 3.5%-3.75% range at its January meeting and is expected to keep its monetary policy on hold until June, the first meeting with Kevin Warsh as the bank’s Chairman. Later this week, however, US Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) Price Index figures might alter these views.
On Tuesday, Chicago Fed President Austan Goolsbee affirmed that the bank might cut interest rates “several times” this year if inflationary pressures continue to moderate, although he conditioned those actions on upcoming data.
In Switzerland, the economic calendar has been thin this week, but the Swissie remains on its back foot since the Swiss Consumer Prices Index (CPI) data revealed that inflation remains at the lower end of the Swiss National Bank’s (SNB) target range, which keeps speculation of negative interest rates alive.
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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