The USD/CHF pair has experienced a rebound, shifting into positive territory amidst the Swiss National Bank’s (SNB) decision to reduce interest rates by 25 basis points (bps) to 1.50% during its March meeting held on Thursday. Consequently, the pair is trading higher around 0.8960 during the European session.
The SNB’s decision to cut interest rates stems from significant declines in both inflation and growth over the past year. With the SNB projecting inflation to average 1.9% in 2024, the current inflation rate notably lags behind this forecast, standing at 1.2%. However, February witnessed a noteworthy increase in the Consumer Price Index (CPI), rising by 0.6% compared to the previous month’s increase of 0.2%.
Meanwhile, the Federal Reserve has revised its projection for a higher long-term policy rate through December, edging up to 2.6% from 2.5%. Despite the Fed‘s optimistic growth outlook, markets appear to be discounting these projections, resulting in a decline in the value of the US Dollar (USD).
The US Dollar Index (DXY) is hovering around 103.30, primarily influenced by weaker US Treasury yields. Yields for the 2-year and 10-year bond coupons have dipped to 4.59% and 4.25%, respectively. This decline is attributed to the US Federal Reserve’s (Fed) reaffirmation of expectations for three interest rate cuts this year.
Although the Federal Open Market Committee (FOMC) anticipates stronger growth throughout 2024 and 2025 than initially anticipated, investor sentiment suggests expectations of additional easing measures in 2024.
