17 Dec 2024

USD/CHF is experiencing upward momentum, approaching 0.8955 during the early European session on Tuesday, reflecting a daily increase of 0.16%. The Federal Reserve is anticipated to reduce interest rates by 25 basis points at the upcoming meeting on Wednesday in December. Additionally, geopolitical uncertainties may enhance the appeal of safe-haven currencies such as the Swiss Franc, potentially limiting further gains for the currency pair.

The USD/CHF currency pair has risen to approximately 0.8955 during the early European trading session on Tuesday, supported by a resurgence in demand for the US Dollar (USD). The Swiss National Bank (SNB) is set to publish its Quarterly Bulletin for the fourth quarter on Wednesday, coinciding with a significant monetary policy meeting of the Federal Reserve (Fed).

Market participants anticipate that the Fed will implement a 25 basis point (bps) reduction in interest rates in December, with the CME FedWatch Tool indicating a 95.4% probability of this outcome as of Tuesday. This adjustment would lower the target federal funds rate to a range of 4.25%-4.50%, down from the current range of 4.50% to 4.75%.

The Fed's press conference and the Summary of Economic Projections, commonly referred to as the 'dot-plot,' will be closely scrutinized as investors prepare for the US central bank to potentially reduce its easing measures in 2025, in light of anticipated higher inflation during the Trump administration. A hawkish stance from the Fed could lend support to the Greenback against the Swiss Franc (CHF) in the short term.

Greg McBride, Chief Financial Analyst at Bankrate, noted, "Expectations of persistent inflation in an otherwise strong economy will increase the likelihood that interest rates remain elevated for an extended period, either through a prolonged pause in rate cuts or a more gradual approach in 2025."

On the Swiss side, data released by the Federal Statistical Office (FSO) on Monday indicated that Switzerland’s Producer and Import Price Index decreased by 0.6% month-on-month in November, contrasting with the previous month's decline of 0.3%. This figure was notably lower than the anticipated increase of 0.2%.

Additionally, ongoing geopolitical tensions in the Middle East may enhance safe-haven flows, thereby benefiting the CHF. Turkey has condemned Israel’s intention to expand settlements in the occupied Golan Heights, raising concerns regarding Israel’s actions in Syria following the fall of the Assad regime.