USD/CHF rebounded near 0.8760 as the US Dollar improved ahead of the Fed decision

• USD/CHF halts a two-day losing streak ahead of Fed policy decision.

• SNB is widely anticipated to hold its interest rate at 1.75% following the recent downbeat inflation.

• Investors await Fed Chair Jerome Powell’s comments to gain insights into the interest rates trajectory.

USD/CHF edged closer to 0.8760 during Asian trading hours on Wednesday, snapping two days of losses as US bond yields improved on expectations for the US dollar. The Swiss National Bank (SNB) is expected to keep its policy rate steady at 1.75% at Thursday’s meeting, especially in light of the recent decline in Swiss inflation in November.

The upcoming monetary policy assessment in the quarterly bulletin will provide valuable insight into the SNB’s outlook, providing a medium-term conditional inflation forecast.

The US dollar index (DXY) continued on an upward trajectory, reaching the 104.00 level, supported by higher yields on both the 2-year and 10-year US bond coupons, standing at 4.73% and 4.20%, respectively, as of press time.

The cautious outlook of market participants ahead of the Federal Reserve’s policy decision indeed introduces an element of uncertainty that could potentially put downward pressure on the greenback, thereby affecting the USD/CHF pair. While the Federal Open Market Committee (FOMC) is expected to maintain its current policy stance, the focus on hints at a possible rate cut in 2024 adds a layer of intrigue for investors.

The significance of Federal Reserve Chair Jerome Powell’s comments becomes more apparent, as they are likely to influence market expectations and the movement of the USD/CHF pair.

The US dollar’s recent high volatility shock from the release of Consumer Price Index (CPI) figures reflected the market’s reaction to 3.1% annual growth, as previously expected in November, against a reading of 3.2%. The parallel rise in US core CPI to 4.0% was in line with market expectations, indicating a degree of predictability in inflation trends.

As market participants await the release of the US Producer Price Index (PPI) for November, the focus shifts to expectations of a growth reduction to 1.0% yearly. Projections for an easing Core PPI at 2.2%, compared to the 2.4% prior, add another layer to the market’s anticipation.