Insights 
VT 
Federal Reserve Impact
Currently, the US Dollar Index trades near 99.85. In the past week, the US Dollar has appreciated against the Australian Dollar (by 0.24%), but depreciated against the Canadian Dollar (by 0.02%), Japanese Yen (by 0.76%), British Pound (by 1.36%), and Swiss Franc (by 1.01%).
Federal Reserve discussions about inflation have reduced dovish expectations after a 25 basis point interest rate cut last Wednesday. Fed Chair Jerome Powell noted that a December rate reduction is unlikely. The likelihood of a further rate cut in December has dropped to 69.3% from 91.7%.
Attention will be on the US ISM Manufacturing PMI for October, expected to be 49.2, up from 49.1. The Swiss Franc remains steady ahead of the release of the Swiss CPI data for October. Swiss inflation is expected to drop to 0.1% monthly but increase to 0.3% annually. The Swiss CPI, crucial for inflation understanding, will see another release on November 3, 2025.
US Dollar Strength
The US Dollar is gaining strength because the Federal Reserve is signaling it may not cut interest rates again in December, as many had expected. We saw the probability of a December cut drop from over 90% to below 70% in just one week. This shift in expectations is the primary driver pushing the USD/CHF pair higher.
This morning’s Swiss inflation data confirmed the market’s view, coming in slightly weaker than anticipated at -0.2% for the month. This marks the third consecutive monthly decline and keeps the annual rate barely positive at 0.3%, far below the Swiss National Bank’s target. A lack of inflation gives the SNB no reason to strengthen the franc, leaving it vulnerable against a resilient dollar.
The underlying economic data from the US continues to suggest resilience, justifying the Fed’s cautious stance. Last week’s final Q3 GDP figures showed the economy grew at an annualized 2.3%, beating initial estimates and showing that the slowdown that prompted the October rate cut may be less severe than feared. This contrasts sharply with the sluggish growth and disinflationary pressures we are seeing in Switzerland.
We have seen this divergence in policy play out before, most notably back in 2022 when the Fed’s aggressive hiking cycle drove USD/CHF above parity. While the situation is different now, the principle of policy divergence driving the currency pair remains the same. The SNB has little choice but to remain dovish, creating a favorable environment for dollar strength.
For traders, this suggests positioning for further upside in USD/CHF over the coming weeks. Implied volatility has increased, with one-month options now pricing in larger potential swings, making strategies like buying call options attractive to capture this upward momentum. A move towards the 0.8200 psychological level seems plausible if US economic data continues to hold up.
