USD/CHF recovers slightly, but posts losses after Fed cut

  • USD/CHF recovers slightly after Fed decision, but buyers struggle to raise rates significantly.
  • The Fed implements a 50 bp rate cut, forecasts a 4.4% federal funds rate for 2024 and maintains a data-driven policy stance.
  • Jerome Powell signals reduced inflation risks, with flexibility to adjust the pace of future rate cuts as needed.

USD/CHF recovered after a back-and-forth following the Federal Reserve’s 50 basis points (bps) cut in borrowing costs, although it reaffirmed its data-dependent stance, according to Chairman Jerome Powell. At the time of writing, the major pair was trading at 0.8459, marginally down by 0.14%.

USD/CHF falls as Fed shows confidence in controlling inflation but leaves room for flexible policy adjustments

The Fed has begun its easing cycle, which will take the federal funds rate to 4.4% in 2024, according to the median in the Summary of Economic Projections (SEP). In its monetary policy statement, officials hinted that they had gained confidence that inflation is on a “sustainable” path toward the central bank’s 2% target and that the risk of the dual mandate was “roughly” balanced.

Policymakers expect the U.S. economy to grow at a 2% pace over the 2024-2027 period, and project inflation to decline to 2.6% in 2024 and 2.2% in 2025, reaching the 2% target in 2026.

The unemployment rate, seen as the main driver of Fed Chair Powell’s decision to cut rates by 0.50%, is expected to rise to 4.4% by the end of the year.

Following the Fed statement, Fed Chairman Jerome Powell commented that inflation risks had receded and the economy remained strong. He added that if higher prices persist, the Fed may tighten policy more slowly while keeping its options open to “go faster, slower, or pause rate cuts if appropriate.” Powell said the Committee is in no rush to normalize policy.

Meanwhile, the USD/CHF erased some of its losses, although buyers were unable to push the exchange rate higher.

USD/CHF Price Forecast: Technical Outlook

The USD/CHF daily chart suggests that an inverted head-and-shoulders pattern could be emerging at the lows around 0.8400,

Momentum remains skewed to the downside, as shown by the Relative Strength Index (RSI). Still, the latter’s failure to print another low could pave the way for an upward move in the USD/CHF pair.

If the major pair breaks above the September 12 high of 0.8549, that could pave the way for a confirmation of the inverted head-and-shoulders pattern. The next resistance would be the August 15 peak at 0.8748. Conversely, if USD/CHF drops below 0.8400, look for a retest of the year-to-date (YTD) low of 0.8373.

Source: Fx Street

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