The USD/CHF pair gained traction on Monday, rising to around 0.8935 and breaking a two-day losing streak during the early European session. The move was largely driven by a hawkish rate cut from the US Federal Reserve (Fed), which provided support to the US Dollar. Traders are also awaiting the release of key US economic reports, including the December Consumer Confidence Index and the Chicago Fed National Activity Index, later in the day.
Fed Rate Cut Sparks USD Strength
Last week, the Federal Reserve reduced interest rates by 25 basis points, lowering its forecast for future cuts to two in 2025, down from an initial projection of four. This shift in the Fed’s stance reflects growing concerns about persistent inflation in the months ahead, a move that could further bolster the Greenback against the Swiss Franc (CHF).
Swiss National Bank’s Aggressive Rate Cut
On the Swiss side, the Swiss National Bank (SNB) surprised markets by cutting its key interest rate by 50 basis points at its December meeting, exceeding expectations for a smaller reduction. This action was prompted by weaker-than-expected inflation data in Switzerland, along with rising uncertainty in the global economy. The more aggressive rate cut from the SNB could weigh on the CHF and act as a tailwind for the USD/CHF pair.
SNB Chairman Martin Schlegel suggested that while further rate cuts are possible in the coming year, it is now less likely that the Swiss central bank would push rates below 0%. “We will continue to monitor the situation closely and will adjust our monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term,” Schlegel stated.
Geopolitical Tensions Pose Risks to CHF
Despite the hawkish stance of the US Fed and SNB rate cuts, geopolitical tensions in the Middle East could strengthen demand for safe-haven currencies like the CHF. Recent Israeli airstrikes across the Gaza Strip resulted in the deaths of at least 50 Palestinians, with reports suggesting that the attacks targeted civilian areas, including homes and a school. Additionally, the Houthis claimed responsibility for launching a hypersonic ballistic missile at a military target, further escalating the geopolitical uncertainty. These developments may drive investors toward safer assets like the Swiss Franc, limiting the upside potential for USD/CHF.
Related Topics:
