The USD/CHF pair is making a comeback in the European trading hours on Friday, clawing back losses from the previous two sessions. It’s trading around 0.9000, thanks to a strengthening US dollar. The impetus behind the dollar’s rally is the growing belief that the US Federal Reserve (Fed) will make fewer interest rate cuts next year.
During its December meeting, the Fed decided to lower interest rates by 25 basis points. More significantly, it also tweaked its 2025 projections, slashing the number of expected rate cuts from four to two. Moderate Personal Consumption Expenditures (PCE) inflation data in the US has further dampened the prospects of additional rate cuts, bolstering the dollar’s position.
The US Dollar Index (DXY), which gauges the dollar against six major currencies, is trading above 108.00. While this is just shy of its highest level since November 2022, the dollar’s upward momentum might be curbed. That’s because US Treasury bond yields are relatively muted on Friday, with 2-year and 10-year yields at 4.33% and 4.58% respectively at the time of writing.
The USD/CHF pair hasn’t had a completely smooth ride. The Swiss franc (CHF) had previously gained strength after the release of Swiss GDP data. The figures showed stronger-than-expected economic growth and an acceleration in the third quarter on a year-over-year basis. However, traders are still mulling over recent comments from Swiss National Bank President Martin Schlegel. He hinted that interest rates in Switzerland could potentially dip below zero, which may lead to a depreciation of the Swiss franc and offer further support to the USD/CHF pair.
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