Focus on Fed’s Hawkish Guidance
Attention is on Fed Chair Jerome Powell’s press conference and updated economic projections as the possibility of a hawkish cut looms. Earlier in the year, the Fed reduced rates twice by 25 bps, and they may signal a pause through early 2026 as inflation is above target and the job market is stable.
The updated dot plot will influence market expectations. Previous projections suggested one cut in 2026 and 2027, no change in 2028, with a long-term rate at 3.0%. The Swiss National Bank is predicted to keep rates steady, supported by a recent Reuters poll indicating no change, despite varying predictions on future adjustments.
Given the US Dollar’s weakness ahead of the Federal Reserve’s decision, we see the market has fully priced in a 25 basis point rate cut. The immediate focus for traders should be on the potential for a “hawkish cut,” where the Fed lowers rates but signals a pause in easing. This creates an opportunity for volatility plays, using options like straddles to capitalize on a sharp move in either direction following Chair Powell’s press conference.
We have seen recent US economic data from November 2025 supporting this hawkish view, with inflation remaining sticky above 3% and the labor market adding a solid 195,000 jobs. This resilience suggests the Fed has little reason to promise further cuts, potentially strengthening the US Dollar if their new dot plot projections reflect a higher-for-longer stance. Derivative traders might consider buying short-term USD call options to position for a potential rebound in the dollar.
Swiss National Bank Stance
Meanwhile, the Swiss National Bank is widely expected to hold its rate at 0.00%, especially with Swiss inflation hovering around a manageable 1.5% as of last month. This policy divergence, where the Fed is still navigating above-target inflation while the SNB is stable, should favor the US Dollar over the Swiss Franc in the medium term. This growing gap in policy makes selling CHF puts against the USD a viable strategy for those anticipating a reversal in the pair’s recent decline.
