USD/CHF remains on the defensive, trading near the 0.7920 area during Asian hours on Friday, as the US Dollar continues to soften amid expectations of further monetary easing by the Federal Reserve. Markets are increasingly pricing in two additional US rate cuts in 2026, keeping downside pressure on the Greenback and favoring low-yielding counterparts such as the Swiss Franc.
The Fed delivered a 25-basis-point rate cut at its December 2025 meeting, bringing the federal funds rate target range to 3.50%–3.75%. This move capped a total of 75 basis points of easing over the course of 2025, as policymakers sought to support a cooling labor market while inflation remained above target.
Fed leadership uncertainty adds to USD weakness
Investor sentiment toward the US Dollar has also been affected by uncertainty surrounding future Fed leadership. Markets are awaiting US President Donald Trump’s nomination of a new Fed chair to replace Jerome Powell when his term expires in May. President Trump indicated earlier this week that the announcement would be made sometime in January.
National Economic Council Director Kevin Hassett is widely seen as the leading candidate, although former Fed Governor Kevin Warsh has also been mentioned. Other names reportedly under consideration include current Fed Governors Christopher Waller and Michelle Bowman, as well as BlackRock executive Rick Rieder. Expectations that the new leadership could favor a more dovish policy stance have reinforced downside risks for the USD.
However, the Federal Open Market Committee’s December meeting minutes highlighted internal divisions. While most officials indicated that pausing further rate cuts could be appropriate if inflation continues to ease, some argued for keeping rates unchanged for a period following the three cuts delivered in 2025, reflecting lingering concerns about inflation dynamics.
Swiss Franc supported by safe-haven flows and stronger data
On the Swiss side, the Franc continues to find support from its traditional safe-haven appeal amid heightened geopolitical tensions. Renewed exchanges of accusations between Russia and Ukraine over civilian attacks on New Year’s Day, alongside ongoing friction between the US and Venezuela, have kept demand for defensive assets elevated, limiting USD/CHF rebounds.
Fundamentally, Switzerland’s latest macro data has also reinforced CHF resilience. The KOF Economic Indicator rose by 1.7 points to 103.4 in December, its highest level since September 2024 and well above market expectations of 101.4. The improvement was led by the production sector, with manufacturing-related components pointing to a more constructive economic outlook.
Against this backdrop, USD/CHF is likely to remain vulnerable to further downside unless US rate expectations or risk sentiment shift meaningfully in favor of the Dollar.
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