USD/CHF declines towards 0.9350 as focus shifts to Fed/SNB interest rate decision

• USD/CHF is likely to display weakness to near 0.9350 as a risk-on impulse has hogged the limelight.
• Volatility in the currency market is accelerating as the Fed is set to announce the last monetary policy of CY2022.
• Investors have ignored uncertainty over Fed’s interest rate peak.

The USD/CHF pair has failed to extend its recovery above 0.9380 in early Asia and is declining towards the 0.9350 cushion ahead. A significant drop in safe-haven appeal led by the mounting risk appetite theme has weighed on the US Dollar Index (DXY). Volatility in the currency market is accelerating as the Federal Reserve (Fed) is set to announce the last monetary policy of CY2022 next week.

The USD Index is looking to shift its auction profile below the critical resistance of 105.00 as investors are cheering expectations of a slowdown in the pace of the interest rate hike by the Fed. Meanwhile, S&P500 is focusing more on optimism derived from expectations over a deceleration in interest rate hike pace rather and has ignored recession fears.

Fed policymakers have been favoring a return to lower rate hike culture to avoid financing risks and to give some time to the economy to heal stubborn inflation itself. Analysts at Danske Bank see a further hike in interest rates by 50 basis points (bps) and a hawkish message from Fed chair Jerome Powell for CY2023. Also, the neutral rate is expected at 5.00-5.25%.

But before that, the release of the United States inflation data will be of utmost importance. The headline inflation is seen unchanged at 7.7% while the core inflation figure could move marginally higher to 6.4% from the former release of 6.3%.

On the Swiss Franc front, investors are shifting their focus toward the interest rate decision by the Swiss National Bank (SNB), which is scheduled for next week. SNB Chairman Thomas J. Jordan is expected to return to policy easing as the inflationary pressures are marginally above the desired rate.