USD/CHF surges to near 0.8960 after SNB announced a 25 bps interest rate cut

• USD/CHF gains ground on SNB’s decision to reduce interest rates by 25 bps on Thursday.
• The Swiss National Bank (SNB) has opted to reduce interest rates in response to significant declines in both inflation and growth over the past year.
• Fed projects a higher long-term policy rate through December, increasing to 2.6% from the previous projection of 2.5%.

USD/CHF has rebounded from intraday losses and shifted into positive territory following the Swiss National Bank's (SNB) decision to cut interest rates by 25 basis points (bps) to 1.50% in its March meeting held on Thursday. As a result, the USD/CHF pair trades higher around 0.8960 during the European session.

SNB has reduced interest rates due to substantial declines in both inflation and growth over the last year. The Swiss National Bank (SNB) projects inflation to average 1.9% in 2024. Currently, the inflation rate is notably lower than this forecast, standing at 1.2%. However, there was a significant increase in the Consumer Price Index (CPI) in February, rising by 0.6% compared to the previous month's increase of 0.2%.

The Federal Reserve is now projecting a higher long-term policy rate through December, ticking up to 2.6% from 2.5%. However, despite the Fed's optimistic growth expectations, markets are seemingly shrugging off these projections, leading to a decline in the value of the US Dollar (USD).

The US Dollar Index (DXY) hovers around 103.30, mainly influenced by weaker US Treasury yields. Yields for the 2-year and 10-year bond coupons have fallen to 4.59% and 4.25%, respectively. This decline is attributed to the US Federal Reserve's (Fed) reaffirmation of expectations for three interest rate cuts this year.

Even though the Federal Open Market Committee (FOMC) projects stronger growth throughout 2024 and 2025 than initially anticipated, investor sentiment indicates expectations of additional easing measures in 2024.