USD Rises vs Franc as Fed Looms and SNB Holds Rates

Key Moments

Dollar Extends Rally Against Franc Ahead of Fed Decision

USD/CHF advanced for a fourth consecutive session, trading near 0.8300 during Asian dealings on Wednesday. The pair continued to firm as the US Dollar (USD) drew support from cautious positioning ahead of the US Federal Reserve’s policy announcement scheduled for later in the day.

Market participants were also tracking upcoming US macro releases, including GDP figures and the Personal Consumption Expenditures (PCE) price index, for additional guidance on the Fed’s future policy stance.

Market Expectations for the Federal Reserve

Investors broadly anticipated no change in the Federal Reserve’s benchmark rate, which currently stands in a 3.75% to 4.0% target band. Based on the CME FedWatch tool, derivatives markets assigned a 92.8% probability to a rate hold at this meeting, while pricing an 84.4% chance of a rate increase at the December gathering.

Traders were set to scrutinize Fed Chair Kevin Warsh’s comments for any nuanced adjustments in the central bank’s assessment of the economic outlook and inflation trajectory.

AI-Driven Sentiment Dampens Demand for Treasuries

Risk appetite improved as sentiment around artificial intelligence strengthened, diminishing investor demand for safe-haven US Treasury bonds. Forthcoming earnings results from large technology names were expected to shed light on AI-related spending trends, a segment described as an important contributor to US economic performance.

This brighter outlook for the technology sector was seen reversing part of the flight-to-quality flows that had followed the recent global sell-off in technology shares.

SNB Stays on Hold as Inflation Pressures Are Contained

Minutes from the latest Swiss National Bank (SNB) meeting indicated that policymakers observed mounting inflation pressures but did not detect broad-based spillovers across the Swiss economy. The rise in inflation was primarily attributed to higher oil prices and a softer Swiss franc.

The SNB left its policy rate unchanged at 0%. Chair Schlegel emphasized that the current stance was appropriate, citing overall price stability and stating that no policy changes were warranted at this stage.

Economists projected that the policy rate would remain steady through 2027. Nonetheless, market pricing began to reflect the possibility of a rate increase in early 2027.

Technical View: UOB Flags Overbought Conditions in USD/CHF

Analysts at UOB Group highlighted the ongoing upward grind in USD/CHF at the start of the week, noting that the Dollar had “rising to a high of 0.8294 before closing at 0.8290 (+0.23%).” They reiterated their earlier observation, made when the pair was trading near 0.8270, that “conditions are overbought after the sharp rise over the past two days, but there is scope for USD to test 0.8290,” while also reiterating that “a sustained advance above this level is unlikely.”

Looking ahead, UOB remarked that “downward momentum is starting to slow, and conditions remain overbought,” although the latest push higher “is not showing signs of pausing just yet.” For the near term, their view was that the USD “could edge higher, but any advance is unlikely to reach the major resistance at 0.8320,” with initial support now located at 0.8270.