Two-week lows: Swiss Franc edges higher ahead of Fed decision

• 0.5% weekly gain holds for USD/CHF despite a retreat below 0.8300 from highs of 0.8313.
• The USD draws support from receding AI-sector worries and expectations that the Fed will hold rates with a hawkish message.
• A six-month low marked October’s reading for Switzerland’s ZEW Economic Expectations Index.

USD/CHF trades around 0.8295 at the time of writing. The pair has retreated from two-week highs above 0.8300 but still shows a weekly gain of more than 0.5%. On Wednesday, the Swiss Franc (CHF) has surrendered earlier gains against the US Dollar (USD) and is virtually unchanged on the daily chart. It remains firmer as investors prepare for the Federal Reserve’s (Fed) monetary policy announcement later in the day.

Ahead of the Fed decision, trading remains subdued. The central bank is widely expected to keep monetary policy unchanged while evaluating the effects of September’s approved 0.25% rate hike.

December rate hike signals in focus

Investors will scrutinise the decision for signs that the central bank remains committed to returning inflation to target, seeking confirmation of hopes for another rate increase in December. Chairman Kevin Warsh, however, is unlikely to signal a specific rate trajectory.

ING analyst Christ Turner describes a backdrop that the bank considers broadly favourable for the Dollar: “a little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response,”

In the ING expert’s view, Chair Warsh is unlikely to “tie himself in knots by citing a tightening in financial conditions, having learnt from the unruly market response to his press conference in July.” The bank nevertheless expects that a continued “focus on restoring monetary stability should remain the dominant message and keep the dollar supported.”

October’s ZEW Economic Expectations Index for Switzerland dropped to a six-month low of -15-3, compared with 2.6 in September. Published earlier in the day, the report pointed to further deterioration, although the Swiss Franc showed little reaction.