USD/CHF builds cushion around 0.9640, focus is on Fed-SNB monetary policy

• USD/CHF has sensed a sigh of relief after declining to near 0.9640 as DXY loses steam.
• The Fed should come out with an ‘out of the box’ solution to cool off the red-hot inflation sooner.
• A 75 bps rate hike by the SNB will push the interest rates to a positive zone after a period of 10 years.

The USD/CHF pair is attempting to build a base of around 0.9640 in the early Asian session. Earlier, the asset witnessed a steep fall after failing to strike the round-level resistance of 0.9700. The correction in the asset ensures the unavailability of sheer momentum and will conclude sooner. A lackluster performance is expected from the asset ahead as investors will await the announcement of the monetary policies for making informed decisions.

Recent events clear the responsiveness of change in the inflation rate is not desired as per the change in the interest rates by the Federal Reserve (Fed). The current pace of hiking interest rates by the Fed is extremely high and disappointment with the resulting outcome will force the Fed either to come out with an ‘out of the box’ solution or scale up the current pace to bring price stability sooner and the overall demand could accelerate further.

So expectations of a full percent rate hike by the Fed cannot be ruled out as the Fed will deploy its entire chaos to achieve its foremost priority. For a longer-term perspective, the Financial Times has come forward with an interest rate target of 4-5% in 2023, which will sustain beyond 2023 and only a series of slowdowns in price pressures will compel the Fed to turn ‘neutral’.

On the Swiss franc front, the interest rate decision from the Swiss National Bank (SNB) will also hog the limelight. The inflation rate in the Swiss region is rising at a modest pace and has landed at 3.5% in August 2022. Considering the market consensus, SNB Chairman Thomas J. Jordan will announce a rate hike by 75 basis points (bps), which will push the interest rates into the positive territory to 0.5%. The SNB interest rates will enter positive territory after a period of 10 years.