09 Jan 2025

• USD/CHF drifts higher to around 0.9115 in Thursday’s early European session.
• Fed Minutes signalled a cautious approach to rate cuts, supporting the USD. 
• Swiss inflation slowed in December, supporting the case for more easing in interest rates by the SNB.
• The USD/CHF currency pair is experiencing upward momentum, reaching approximately 0.9115 during the early hours of European trading on Thursday, supported by a robust US Dollar (USD). The Federal Reserve's cautious approach, coupled with strong US economic indicators, lends additional support to the pair. Market participants will be attentive to comments from Federal Reserve officials on Thursday for further insights regarding the US interest rate trajectory for the remainder of the year.
  
  Investors have reduced their expectations for rate cuts, with the CME FedWatch Tool indicating a probability of less than 50% for a rate reduction prior to the June meeting. Blake Millard, director of investments at Sandbox Financial Partners, remarked, "Given that the Federal Reserve is anticipated to implement fewer rate cuts than most other major central banks, the expected interest rate differentials are advantageous for the US Dollar."
  
  Minutes from the Federal Reserve's December meeting, released on Wednesday, indicated that policymakers believe the adjustment process may take longer than initially expected due to recent inflation readings that exceeded forecasts, as well as potential impacts from changes in trade and immigration policies.
  
  In Switzerland, the inflation rate decreased slightly in December 2024, reinforcing the Swiss National Bank's (SNB) decision to consider further interest rate reductions this year. The Consumer Price Index (CPI) increased by 0.6% year-on-year in December, down from 0.7% in November, aligning with market expectations. GianLuigi Mandruzzato, an economist at EFG Bank, stated, "Another interest rate cut by the SNB in March is now virtually certain." Anticipations of an additional rate cut by the SNB may exert downward pressure on the Swiss Franc (CHF) against the US Dollar in the short term.
  
  Conversely, ongoing geopolitical tensions in the Middle East and the persistent conflict between Russia and Ukraine may enhance safe-haven demand, benefiting the CHF. Local news agency Aljazeera reported that Israel's military actions in Gaza have persisted overnight, including an airstrike on a residence in the Nuseirat refugee camp that resulted in the deaths of two individuals, one of whom was a child.