USD/CHF declines as the Federal Reserve’s neutral stance significantly diminishes the likelihood of an interest rate increase in October. Markets currently reflect an 83.9% probability that the Federal Reserve will maintain its interest rates this month. Low Swiss borrowing costs maintain the franc’s attractiveness as a source for carry trade funding. The USD/CHF pair has experienced depreciation following its bullish gap opening, yet it continues to trade in positive territory, hovering around 0.8240 during the Asian trading session on Monday. The currency pair experienced a decline as the US Dollar faced pressure due to diminishing expectations surrounding an October interest rate increase by the Federal Reserve. Speaking at an International Monetary Fund event on Friday, Fed Chairman Kevin Warsh remarked that he does not prejudge monetary policy decisions, thereby leaving markets without a clear direction ahead of the central bank’s upcoming October 27-28 meeting.
Consequently, the neutral remarks led to a significant decline in expectations for a rate increase. Data from the CME FedWatch Tool indicates that traders are currently assigning an 83.9% probability to the central bank maintaining interest rates at their current level later this month, a significant increase from the 49% probability noted just a month prior. Meanwhile, the Swiss National Bank is widely anticipated to maintain its policy rate at 0% through the end of the year, as policymakers reduce the rhetoric surrounding active currency intervention. Swiss borrowing costs have remained the lowest globally for over a year, contributing to the franc’s sustained attractiveness as a favoured funding currency for carry trades. Strategists note that the bearish bias in USD/CHF has intensified more quickly than they had anticipated.
They recall that in their 1-3 week view last Friday (16 Oct, spot at 0.8280), they had highlighted that “downward momentum is building and if USD closes below 0.8245, it could decline toward 0.8225,” adding that “the odds of USD closing below 0.8245 will remain intact as long as it holds below the ‘strong resistance’ level, now at 0.8350.” Instead, they concede, “we did not expect downward momentum to strengthen so quickly, as USD plummeted to a low of 0.8215 and closed at 0.8239 (-0.34%).” Looking ahead, UOB now judges that “from here, USD could decline further to 0.8200,” while on the topside, “the ‘strong resistance’ is now at 0.8300.” In the daily chart, USD/CHF is positioned at 0.8240, maintaining a neutral-to-capped stance as it remains above the 50-day Exponential Moving Average while trading below the shorter nine-day EMA. This configuration indicates that the recent pullback is consolidating rather than trending decisively.
The 14-day Relative Strength Index around 47 suggests a decline in upside momentum following previous overbought conditions, positioning the pair at risk of further mean reversion if buyers do not manage to reclaim nearby resistance. On the topside, immediate resistance is situated at the nine-day EMA around 0.8288, where a daily close above this level would pave the way for a more robust recovery phase. On the downside, initial support is provided by the 50-day EMA near 0.8213; a break beneath this floor would reinforce the nascent bearish bias and expose deeper losses toward prior swing lows not visible in the current indicator set.
