The USD/CHF exchange rate drifted downwards on Thursday morning as the US dollar index weakened after the Federal Reserve interest rate decision. It dropped to a low of 0.8, its lowest level since November 19 as investors anticipated the upcoming Swiss National Bank (SNB) interest rate decision.
SNB interest rate decision ahead
The USD/CHF exchange rate pulled back as the SNB prepares to deliver its final interest rate decision of the year.
Economists polled by Reuters expect the bank to leave interest rates unchanged at 0% for the second consecutive meeting. Implementing another rate cut would bring interest rates to the negative zone, a move that the bank is attempting to avoid.
The SNB has maintained a highly dovish tone this year, hoping that such a move will help to devalue the franc, which it believes has become highly overvalued. As a result, it slashed rates from 1.75% in February last year to zero today.
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The bank has largely achieved its goals as inflation remains subdued, while the economy is operating at full capacity, with the unemployment rate falling to 2.9% in November this year. In contrast, the rate in the United States has risen to 4.3%.
Still, the SNB will likely have a dovish tilt in this meeting, in that officials will hint of their willingness to do whatever it takes to develop the currency.
The bank typically prefers a weak currency as that helps its exporters by lowering the price of their products abroad. A Bloomberg analyst said:
“The hurdle to cutting rates in 2026 remains high given its limited policy space, while the price outlook is expected to slowly improve as energy prices bottom out and the effects of a strong franc fade.”
The SNB decision comes after the trade tensions between the US and Switzerland ended, with the US lowering its tariffs against the country from 39% to 15% after meeting some of the top executives.
Federal Reserve interest rate cut and QE return
The USD/CHF exchange rate is falling as investors reacted to the latest Federal Reserve interest rate decision on Wednesday.
The bank decided to cut interest rates to between 3.50% and 3.75%, citing concerns in the labor market, which has shown signs of deteriorating in the past few months.
A recent report by ADP showed that the economy lost over 36,000 jobs in November, the worst performance since during the pandemic.
Most importantly, officials said that they will start implementing the quantitative easing (QE) policy. QE is a process where the bank boosts liquidity in the market by buying short-term government bonds. In this case, the bank will buy short-term bonds at a rate of $40 billion a month.
USD/CHF technical analysis
The daily timeframe chart shows that the USD/CHF exchange rate has remained in a tight range in the past few months. It has remained between the support and resistance levels at 0.7865 and 0.8150, respectively.
The pair is consolidating at the 50-day Exponential Moving Average (EMA), while the Average True Range (ATR) has slumped to the lowest level in months. Therefore, the pair will likely remain in this range unless the SNB surprises the market with a negative interest rate cut.
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