USD/CHF holds gains above 0.8050 ahead of monetary policy decisions

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The US Dollar nudges lower against the Swiss Franc on Tuesday, but is holding most of the gains taken over the last few days.

The US Dollar holds gains above 0.8050 against the CHF with the Fed and the SNB in focus.
The Fed is expected to cut interest rates on Wednesday and hint at a pause afterwards.
The SNB is set to keep rates on hold at 0% and play down speculation about negative borrowing costs.

The US Dollar nudges lower against the Swiss Franc on Tuesday, but is holding most of the gains taken over the last few days. The pair is trading at 0.8065 at the time of writing, with downside attempts contained above 0.8050 so far, and all eyes on the Federal Reserve (Fed) and the Swiss National Bank (SNB) monetary policy decisions, due late this week.

A quarter-point interest rate cut by the Fed on Wednesday is practically discounted, and the US Dollar is drawing some support from investors’ expectations that Chairman Jerome Powell will deliver a hawkish message, dampening hopes of further easing in the near-term.

US President Donald Trump has not missed the opportunity of putting some pressure on the central bank, and stated that the new Fed Chair should support interest rate cuts, in an interview with Politico earlier on Tuesday. The impact on the US Dollar, however, has been minimal.

Later on Tuesday, the ADP will release its weekly Employment Change report, and the US Labour Department will follow suit with the delayed JOLTS Job Openings from September and October. The market is bracing for steady 7.2 million openings in both months, slightly below the 7.22 million seen in August.

On Thursday, the SNB will, most likely, leave its benchmark interest rate steady at the current 0% level, as inflation remains at levels near zero. In the Press conference, SNB Chairman Martin Schlegel is likely to play down the possibility of negative interest rates. Any doubts on that point might send the Swiss Franc tumbling against its main peers.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.