USD/CHF remains capped below 0.8090 ahead of the FOMC Minutes
- The US Dollar remains trapped within a 70-pip range below 0.8080.
- The cautious market sentiment is failing to boost the USD against the safe-haven CHF.
- Rising odds for further SNB cuts keep Swiss Franc rallies limited.
The US Dollar has been trapped within a 70-pip horizontal range against the Swiss Franc during the last week and remains trading without a clear direction on Wednesday after being rejected, again, at the 0.8090 area.
The risk-averse sentiment that is supporting the US Dollar against most of its peers is failing to help with the safe-haven Swissie on Wednesday, and the pair remains practically flat on the daily chart, with investors awaiting the release of the minutes of the latest Fed meeting, due later today, and Fed Chairman Powell’s speech on Friday.
The Fed minutes are likely to shed some light on the proportion of the divergences between policymakers. The impact on US Dollar crosses, however, is expected to be limited, as the meeting took place ahead of the US labour and inflation figures that rattled markets, boosting hopes of immediate Fed cuts.
In that sense, Powell’s speech at the Fed’s Jackson Hole Symposium is expected to be more interesting. Investors will be analysing his words with attention to see whether the soft labour data seen earlier this month has convinced the Fed chief to abandon his “wait-and-see” stance.
In Switzerland, data released earlier this week showed industrial production contracted in the second quarter, casting a shadow over the country’s economic outlook, with the impact of US tariffs looming, which might force the SNB to cut rates into negative levels.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.