- USD/CHF edges higher to near 0.7900 ahead of FOMC minutes.
- The Fed is expected to cut interest rates by at least 50 bps in 2026.
- The Swiss Franc trades subduedly in a holiday-truncated week.
The USD/CHF pair edges up to near 0.7900 during the late Asian trading session on Monday. The Swiss Franc pair trades mildly higher as the US Dollar (USD) ticks up, with the US Dollar Index (DXY) rising to near 98.15.
The US Dollar attracts bids even as traders remain confident that the Federal Reserve (Fed) will cut interest rates by at least 50 basis points (bps) in 2026.
According to the CME FedWatch tool, the odds of the Fed reducing interest rates by at least 50 bps in 2026 are 73.3%.
For fresh cues on the Fed’s monetary policy outlook, investors will focus on Federal Open Market Committee (FOMC) minutes of the December meeting, which will be published on Tuesday. In the policy meeting, the Fed reduced the Federal Funds Rate by 25 basis points (bps) to 3.50%-3.75%, and signaled one in 2026.
This week, investors will also focus on the United States (US) Initial Jobless Claims data, which will be released on Wednesday.
Meanwhile, the Swiss Franc (CHF) trades marginally lower against its peers at the start of the week. The Swiss currency ticks lower while markets remain illiquid amid a holiday mood. In 2026, the major trigger for the Swiss Franc will be whether the Swiss National Bank (SNB) will pivot to policy normalization after remaining ultra-dovish in 2025.
US Dollar FAQs
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.
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.
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.
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.
