Solid Gold Berjangka – The USD/CHF pair weakened to around 0.8250 during Asian trading on Tuesday (October 20), following a slight gain the previous day. The downward pressure emerged as the US dollar lost momentum, with the market becoming increasingly confident that the Federal Reserve will keep interest rates unchanged at its October meeting.
Fed official Kevin Warsh recently expressed optimism regarding the resilience of the US economy but offered no clear indication as to when the next interest rate hike might occur. The market currently anticipates that the Fed will hold rates steady in October, while the probability of a hike in December remains at approximately 93.5%.
These expectations have prompted investors to reassess their previously aggressive long positions on the US dollar. Some market participants believe that the market may have over-priced the Fed’s sustained interest rate-hiking cycle, thereby limiting any further short-term gains for the dollar.
Nevertheless, the decline in USD/CHF may remain limited, as the Swiss franc faces pressure from a significant interest rate differential with the United States. With US interest rates remaining higher than those in Switzerland, the franc is frequently used as a funding currency for "carry trades," where demand for higher-yielding assets can weigh on the Swiss currency.
The Swiss National Bank has maintained its policy interest rate at 0% for over a year, as inflation is considered stable. While some speculation regarding a potential rate hike has begun to emerge, the market expects this policy to remain in place until 2027. Given these conditions, the near-term movement of the USD/CHF pair will continue to be influenced by shifts in expectations regarding Fed policy, as well as the interest rate differential between the US and Switzerland. (srh)