USD/CHF gains above 0.7800 amid Fed hawkish hold expectations

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The USD/CHF pair gathers strength to around 0.7820 during the early European session on Thursday. The US Dollar (USD) strengthens against the Swiss Franc (CHF) as soaring oil prices threaten to spur inflation and force the US Federal Reserve (Fed) to adopt more hawkish policy stances.

USD/CHF gains momentum to near 0.7820 in Thursday’s early European session.
Fed is anticipated to leave the interest rate unchanged at its March policy meeting.
The US PCE inflation and GDP reports will be the highlights on Friday.

The war in the Middle East stoked fears of inflation rising in the US, which increases the likelihood of the Fed keeping interest rates higher for longer. The US central bank is expected to hold rates steady at its upcoming March 17-18 meeting. Many economists anticipate the next rate cut will not occur until June or July 2026.

Oman has evacuated all vessels from its major oil export terminal at Mina Al Fahal as a precaution, according to Bloomberg on Thursday. Iran, meanwhile, has started its "most intense operation since the beginning of the war." Tehran increased its efforts to block the vital oil conduit, the Strait of Hormuz. Rising tensions in the Middle East could boost the safe-haven currencies such as the CHF against the USD.

Traders will take more cues from the US Personal Consumption Expenditures (PCE) Price Index report for January, which is due on Friday. Any signs of softer inflation in the US could drag the Greenback in the near term. The preliminary reading of the US Gross Domestic Product (GDP) for the fourth quarter (Q4) will also be published.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.