Ahead of Fed decision, Swiss Franc edges higher from two-week lows

• USD/CHF retains a 0.5% gain for the week so far despite slipping below 0.8300 from highs of 0.8313.
• The USD is finding support as AI-sector worries subside and investors hope for a hawkish hold from the Fed.
• October saw Switzerland’s ZEW Economic Expectations Index decline to its lowest level in six months.

USD/CHF is retreating from two-week highs above 0.8300 as investors position for the Federal Reserve’s (Fed) monetary policy announcement later on Wednesday. At the time of writing, the pair is near 0.8295, still more than 0.5% higher for the week. The Swiss Franc (CHF) has surrendered its earlier gains against the US Dollar (USD) and is virtually unchanged on the daily chart, albeit firmer as investors await the decision.

With attention centred on the Fed, markets remain subdued. The central bank is widely expected to keep monetary policy unchanged while it evaluates the effects of the 0.25% rate hike approved in September.

Will the Fed signal a December rate hike?

Although Chairman Kevin Warsh is unlikely to indicate a specific path for rates, investors will seek reassurance that the bank remains committed to returning inflation to the central bank’s target. Such evidence would reinforce hopes for another rate increase in December.

ING analyst Christ Turner describes conditions as broadly favourable for the Dollar, saying that “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.” Even so, ING believes a sustained “focus on restoring monetary stability should remain the dominant message and keep the dollar supported.”

The Swissie showed little reaction to the ZEW Economic Expectations report published earlier in the day. The release pointed to a further deterioration in Switzerland in October, with the Index dropping to a six-month low of -15-3, compared with 2.6 in September.