USD/CHF rebounds slightly but prints losses following Fed tapering

• USD/CHF is recovering slightly after the Fed decision, however buyers are struggling to significantly increase the rate.
• The Fed adopts a 50 bps rate cut, forecasts a 4.4% federal funds rate through 2024 and maintains a data-driven policy stance.
• Jerome Powell sees a reduction in inflation risks, with flexibility to adjust the pace of future rate cuts as appropriate.

USD/CHF bounced back after the Federal Reserve cut borrowing costs by 50 basis points (bps), although it reaffirmed its data-dependent stance, according to Chairman Jerome Powell. At the time of writing, major trades were at 0.8459, down slightly to around 0.14%.

USD/CHF falls as Fed signals 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 of the Summary of Economic Projections (SEP). In its monetary policy statement, officials suggested they had grown confident that inflation was on a “sustainable” path to the central bank’s 2 percent target and that dual-mandate risk had “roughly” balanced out.

Policymakers forecast the US economy to grow by 2% between 2024 and 2027 and forecast inflation to fall to 2.6% in 2024 and 2.2% in 2025 and reach the 2% target in 2026.

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

After the Fed’s 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 adjust policy more slowly, while keeping options open to “go faster, slower or stop cutting rates, if appropriate.” Powell said the Committee is in no rush to normalize the policy.

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

USD/CHF Price Forecast: Technical Insights

The USD/CHF daily chart suggests that a “head and shoulders inversion” could occur at lows around 0.8400,

Momentum remains bullish as the Relative Strength Index (RSI) shows. However, the latter’s failure to print another breakout could pave the way for an advance in the USD/CHF pair.

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