USD/CHF Dips, Stays Above 0.8600 Pre-FOMC

Today, the USD/CHF currency pair is again experiencing a downward trend, marking a second consecutive day of decline. Following an intraday uptick to the 0.8655 region, the pair has seen fresh selling activity and drifted into negative territory. During the early European session, spot prices fell to a new weekly low, with the pair currently trading around the 0.8620 area, down nearly 0.20%.

The U.S. Dollar (USD) is extending its modest pullback from a two-week high and continues to lose ground for the second straight day. This ongoing downtrend in the USD is exerting significant downward pressure on the USD/CHF pair. The USD’s dip can be attributed to some repositioning trade ahead of the anticipated Federal Open Market Committee (FOMC) decision. However, this dip is expected to be limited as traders eagerly await fresh cues about the near-term policy outlook.

Market participants have been progressively discounting the possibility of any further rate hikes this year, following the widely expected 25 basis points increase slated for this Wednesday. Despite this, investors remain skeptical about whether the Federal Reserve (Fed) will commit to a more dovish stance, given the strength and resilience of the U.S. economy. This skepticism persists despite Tuesday’s upbeat U.S. Consumer Confidence Index, which raised optimism that the U.S. economy could avoid a recession this year.

As such, the upcoming monetary policy statement and Fed Chair Jerome Powell’s comments during the post-meeting press conference will be closely scrutinized for hints about the future rate-hike path. These indicators will significantly influence the dynamics of the USD and provide a fresh directional impetus to the USD/CHF pair. Meanwhile, a positive risk tone may undermine the safe-haven Swiss Franc (CHF) and lend support to spot prices.

Investors are also bolstered by China’s commitment to enhance support for its fragile economy, which continues to fuel bullish sentiment across global equity markets. It’s worth noting that China’s state news agency, Xinhua, cited the Politburo—the top decision-making body of the ruling Communist Party—stating that China will increase economic policy adjustments, focusing on expanding domestic demand, boosting confidence, and preventing risks. 

This fundamental backdrop supports the likelihood of some dip-buying at lower levels and prompts caution among aggressive bearish traders. However, it would be prudent for traders to wait for a sustained move beyond the overnight swing low, around the 0.8700 mark, before confirming that the USD/CHF pair has bottomed out near the 0.8560 region. This region represents the lowest level since January 2015, touched earlier this month. This careful watch and wait approach will allow traders to navigate the volatile currency market effectively.