USD/CHF rebounds slightly, yet prints losses following Fed’s cut

• USD/CHF recovers slightly post-Fed decision, yet buyers struggle to significantly elevate the rate.
• Fed enacts a 50 bps rate cut, forecasts a 4.4% federal funds rate by 2024, and maintains a data-driven policy stance.
• Jerome Powell notes reduced inflation risks, with flexibility for adjusting the pace of future rate cuts as necessary.

The USD/CHF recovered after whipsawing after the Federal Reserve lowered borrowing costs by 50 basis points (bps), though it reaffirmed its data-dependent stance, according to Chairman Jerome Powell. At the time of writing, the major trades were at 0.8459, slightly down to some 0.14%.

USD/CHF falls as Fed signals confidence in inflation control but leaves room for flexible policy adjustments

The Fed began its easing cycle, which will take the federal funds rate to 4.4% in 2024, according to the median in the Summary of Economic Projections (SEP). In its monetary policy statement, officials hinted that they had grown confident that inflation is on a “sustainable” path to the central bank’s 2% goal and that dual mandate risk had “roughly” balanced.

Policymakers estimate the US economy to grow at a 2% pace during the 2024-2027 period, and project inflation to edge down 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 for Fed Chair Powell’s decision to slash rates by 0.50%, is expected to climb to 4.4% toward the end of the year.

After the Fed’s statement, Fed Chair Jerome Powell commented that inflation risks had diminished, and the economy remained strong. He added that if higher prices persist, the Fed can adjust policy more slowly while keeping its options open to “go quicker, slower or pause on rate cuts if it is appropriate.” Powell said that the Committee is not in a rush to normalize policy.

Meanwhile, the USD/CHF erased some of its losses, though buyers could not increase the exchange rate.

USD/CHF Price Forecast: Technical outlook

The USD/CHF daily chart hints an ‘inverted head and shoulders’ could be emerging at the lows at around0.8400,

Momentum remains bearishly biased, as the Relative Strength Index (RSI) portrays. Still, the latter's failure to print another trough could pave the way for a leg-up in the USD/CHF pair.

If the major edges above the September 12 high of 0.8549, that could pave the way for a confirmation of the ‘inverted head-and-shoulders.’ The next resistance would be the August 15 peak at 0.8748. Conversely, if USD/CHF drops below 0.8400, look for a re-test of the year-to-date (YTD) low of 0.8373.