USD/CHF trades with caution around 0.7970 on mounting US government shutdown risks

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The USD/CHF pair trades cautiously around 0.7970 during the late Asian trading session on Tuesday. The Swiss Franc pair oscillates inside Monday’s trading range, while its outlook remains uncertain amid escalating risks to a partial United States (US) government shutdown.

USD/CHF struggles around 0.7970 as risks to partial US government shutdown have increased.
US VP Vance has signaled that the government shutdown looks likely.
Investors expect US JOLTS Job Openings data for August to come in at 7.1 million.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges down to near 97.85.

Risks to US government shutdown have escalated as Vice President (VP) JD Vance has siganled after meeting with Democrats that the White House could face a partial shutdown. "I think we’re headed to a shutdown," Vance said, Reuters reported.

Democrats are holding Republicans responsible for a likely shutdown, stating that they want administration to roll back cuts in healthcare benefits announced earlier this year.

The US Labour and Commerce Departments have warned that key economic releases of September could halt if Congress fails to extend government funding before the Tuesday midnight deadline.

Meanwhile, investors await the US JOLTS Job Openings data for August, which will be published at 14:00 GMT. The US Bureau of Labor Statistics (BLS) is expected to show that fresh jobs posted by employers were 7.1 million, close to the prior reading of 7.18 million.

In the Swiss region, investors await the KOF Leading Indicator data for September, which will be published at 07:00 GMT. The data is expected to come in at 97.3, marginally lower than 97.4 in August.

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.