USD/CHF rises as US Dollar hold firms following Fed's steady rate decision
- USD/CHF climbs as the US Dollar remains firm despite muted reaction to the Fed interest rate decision.
- Fed holds rates steady in 11-1 vote; Governor Stephen Miran dissents in favor of a rate cut.
- Swiss growth outlook downgraded as energy prices lift inflation expectations.
The Swiss Franc (CHF) trades on the back foot against the US Dollar (USD) on Wednesday, with USD/CHF snapping a two-day losing streak as a firmer Greenback lends support. Markets showed a limited reaction to the Federal Reserve’s (Fed) latest monetary policy announcement, where interest rates were kept unchanged, in line with expectations.
At the time of writing, USD/CHF is trading around 0.7908, up roughly 0.78% on the day. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 99.85, up 0.30% on the day.
The Fed kept its benchmark interest rate unchanged in the 3.50%-3.75% range in an 11-1 vote. Governor Stephen Miran dissented once again, favoring a 25 basis point rate cut.
Policymakers noted that economic activity continues to expand at a solid pace, while inflation remains somewhat elevated. Job gains have remained low, and the unemployment rate has been little changed in recent months.
The Federal Open Market Committee (FOMC) also highlighted elevated uncertainty around the economic outlook, particularly linked to developments in the Middle East, and reiterated that future policy decisions will depend on incoming data and the evolving balance of risks.
The Fed’s updated Summary of Economic Projections (SEP) showed a modest upgrade to the growth outlook compared with December, with Gross Domestic Product (GDP) now seen at 2.4% for 2026, up from 2.3%. However, inflation forecasts were revised higher, with Personal Consumption Expenditure (PCE) inflation projected at 2.7%, up from 2.4% previously. The Unemployment Rate projection remained broadly unchanged at 4.4% for 2026.
The median dot plot maintained expectations for one rate cut in 2026 and another in 2027, with the federal funds rate projected at 3.4% and 3.1%, respectively.
Attention now turns to Fed Chair Jerome Powell’s post-meeting press conference, where markets will look for further guidance on the policy outlook, particularly on the economic impact of the US-Iran conflict and its implications for inflation.
On the Swiss side, the State Secretariat for Economic Affairs (SECO) slightly revised its growth outlook downward, with the economy now expected to expand by 1.0% in 2026, down from the previous estimate of 1.1%, indicating below-average growth.
The downgrade comes as rising energy prices linked to Middle East tensions add to inflation pressures, with inflation now expected at 0.4% in 2026, up from 0.2% previously.
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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