USD/CHF extends its reversal below 0.8040 with US jobs data on focus

Weak US labour data boosts hopes of Fed cuts

US employment data seen earlier this week has confirmed that the labor market is losing momentum, and the market expects August’s Nonfarm Payrolls report to confirm that trend. The market consensus anticipates a 75k increase in Payrolls, following a 73K rise seen in July.

These figures, along with the dovish comments from diverse Fed speakers this week, have consolidated investors' expectations of Fed easing, pushing US Yields and the US Dollar lower across the board. The CME Fed Watch tool shows a 99.4% chance of a quarter-point rate cut this month, up from 86% in the previous week.

In Switzerland, the August Consumer Price Index data released on Thursday provided mixed signals. On the one hand, yearly inflation remained steady at 0.2%. Still, on the other hand, the monthly CPI contracted unexpectedly, which keeps expectations of negative interest rates alive and adds significant weight to the Swiss Franc’s recovery attempts.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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.