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- USD/CHF falls as the US Dollar eases as markets expect the Fed to hold rates steady in October.
- CME FedWatch suggests that traders expect unchanged Fed rates in October, with a 93.5% probability of a December hike.
- Low Swiss borrowing costs make the Franc a popular funding source, weighing on its value.
USD/CHF depreciates after posting modest gains the previous day, trading around 0.8250 during Asian hours on Tuesday. The pair loses ground as the US Dollar (USD) weakens under growing market expectations that the Federal Reserve (Fed) will leave interest rates unchanged.
Fed Chair Kevin Warsh expressed optimism last week regarding the resilience of the US economy, though he refrained from offering specific guidance on the timing or likelihood of future rate adjustments. According to the CME FedWatch tool, Fed funds futures traders expect the central bank to maintain current rates at its October policy meeting, while pricing in a 93.5% probability of a rate hike in December.
Dollar rally faces reassessment as Fed hike expectations look stretched
DBS Group Research economist Philip Wee notes that recent commentary from the Fed has tempered expectations for an imminent move, with officials having “downplayed the prospect of a rate hike at the October 27-28 FOMC meeting.” He argues this has left markets increasingly uneasy that policy “has priced in an uninterrupted Fed-hiking cycle too aggressively,” reinforcing the risk that investors may pause before adding to long Dollar positions as they reassess the durability of current tightening assumptions.
However, the downside for the USD/CHF pair could be restrained as the Swiss Franc (CHF) faces headwinds from a widening interest rate differential with the United States (US) and selling pressure driven by carry trades. Expectations that US borrowing costs will remain elevated while Swiss rates stay among the world’s lowest have enhanced the Franc’s appeal as a funding currency. The resulting sell-off of Franc-denominated loans tends to weigh on the currency as investors pivot toward higher-yielding assets.
The Swiss National Bank (SNB) has held its policy rate at 0% for over a year, with Chair Martin Schlegel noting that no immediate adjustment is needed given stable inflation. While economists project rates will stay on hold through 2027, markets are beginning to price in a potential hike in early 2027. Meanwhile, Swiss policymakers have notably scaled back their threats of direct currency intervention.
Technical Analysis:
In the daily chart, USD/CHF trades at 0.8250. The pair sits above the 50-day Exponential Moving Average (EMA) but remains capped by the nine-day EMA, leaving the near-term tone neutral with a slight topside cap. The 14-day Relative Strength Index (RSI) at 48.0 hovers near its midline, suggesting consolidative momentum after the recent pullback, while the FXS Fed Sentiment Index around 127.5 hints at a softer policy backdrop that is not yet driving a clear directional break.
On the topside, initial resistance is defined by the nine-day EMA at 0.8283, and a decisive close above this barrier would open the way for a stronger recovery phase. On the downside, immediate support is seen at the current price pivot near 0.8249, ahead of firmer demand around the 50-day EMA at 0.8215; a drop through this latter level would weaken the short-term structure and expose deeper losses toward previous lows.
