Swiss Franc edges higher as US Dollar pauses after data-driven rally

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The Swiss Franc (CHF) edges higher against the US Dollar (USD) on Friday as the Greenback softens after a data-driven rally that pushed it to over one-month highs. At the time of writing, USD/CHF is trading near 0.8015, down about 0.25% on the day.

The Swiss Franc gains modestly as the US Dollar pauses after a strong week.
Upbeat US data and hawkish Fed remarks keep the Greenback on track for weekly gains.
Strong US labor, manufacturing, and retail data support a patient Fed outlook.

US economic data released this week painted a resilient picture of the economy. Weekly Initial Jobless Claims fell to 198,000 in the week ended January 10, beating expectations of 215,000, while the four-week moving average slipped to 205,000 from 211,500, pointing to continued stability in the labor market.

Regional factory surveys also improved, with the Empire State index rising to 7.7 from -3.7 and the Philadelphia Fed survey climbing to 12.6 from -8.8. Meanwhile, Retail Sales rose 0.6% MoM in November, rebounding from -0.1% previously and topping forecasts of 0.4%, underlining firm consumer demand.

The stronger-than-expected run of US data, alongside hawkish remarks from Federal Reserve (Fed) officials, reinforced expectations that the central bank can afford to remain patient on further monetary policy easing, helping the US Dollar stay on track for a third straight weekly gain.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 99.27, down about 0.08% on the day.

Traders now fully price in that the Fed will keep interest rates unchanged at the January 27-28 meeting. However, markets continue to see room for around two rate cuts later this year.

Looking ahead, the US economic calendar remains light, shifting the focus toward incoming central bank commentary. Traders will closely parse remarks from Fed Governor Michelle Bowman and Vice Chair Philip Jefferson later in the day for fresh signals on the monetary policy outlook.

In contrast, the Swiss National Bank (SNB) is widely expected to keep its policy rate unchanged at 0% for the foreseeable future, as inflation in Switzerland remains subdued and well contained., as inflation in Switzerland remains subdued and well contained.

Minutes from the December policy meeting reinforced this stance, with the Governing Board noting that “there was currently no need for monetary policy action,” adding that “neither a tightening of monetary policy nor a further easing of monetary policy would be appropriate at this juncture.”

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.