USD/CHF was trading at 0.7980, up 0.10% on the day, reflecting mixed reactions to US inflation data and ongoing concerns regarding Federal Reserve independence. The US Consumer Price Index (CPI) rose 2.7% year-over-year in December, matching November’s figures and market forecasts, while core CPI, excluding food and energy, stayed at 2.6%, below expectations.
The monthly increases were 0.3% for headline CPI and 0.2% for core CPI, with shelter costs being a key driver. This suggests a gradual disinflation process, limiting immediate changes in the Federal Reserve’s monetary policy. There is a 95% probability that interest rates will remain unchanged in January, with the likelihood of a rate cut in March decreasing recently.
Labour Market and Central Bank Independence
Labour market data shows a modest rise, with average weekly private employment changes reported by ADP increasing to 11,750 jobs. However, the US Dollar suffers due to non-economic factors, such as a criminal investigation into Fed Chair Jerome Powell, causing concerns about central bank independence. Credit rating agencies are monitoring this situation closely, with Fitch and S&P Global Ratings stressing the importance of Fed credibility.
Amid this environment, the Swiss Franc is seeing increased demand as a safe haven. A currency comparison showed the US Dollar performing strongly against the Japanese Yen on that day.
Looking back at the data from this time last year, in January 2025, we were dealing with stubbornly stable US inflation and rising political pressure on the Federal Reserve. This environment created a mixed outlook for the US Dollar, keeping USD/CHF suppressed around the 0.8000 level. Those themes have evolved over the past twelve months, and our response must adapt accordingly.
The disinflationary trend has become much clearer since the reports of early 2025. Recent figures released this month for December 2025 show core CPI has cooled to 2.2% year-over-year, a significant drop from the 2.6% that we saw a year ago. This steady decline puts much more pressure on the Fed to begin its easing cycle.
Consequently, expectations for monetary policy have shifted dramatically. The CME FedWatch tool, which last year showed a near-zero chance of a March rate cut, now indicates a 70% probability of a 25-basis point reduction by the March 2026 meeting. This growing certainty of imminent rate cuts is placing a fundamental cap on the US Dollar’s upside potential.
Swiss National Bank and Policy Divergence
On the other side of the pair, the Swiss National Bank (SNB) has already acted. The SNB proactively cut its key policy rate in September 2025 to 1.00% in a bid to curb the Franc’s strength, which was fueled by the US political uncertainty we saw developing early last year. This has created a dynamic where both central banks are now leaning dovish, but the Fed has yet to make its first move.
This policy divergence suggests that traders should consider options strategies that benefit from increased volatility in USD/CHF. The relative timing of rate cuts between the Fed and the SNB will likely cause sharp movements in the pair over the next few months. Buying straddles or strangles for the second quarter could capture potential price swings as the market digests these central bank decisions.
The institutional risk premium on the US Dollar, which we saw building throughout 2025, remains a factor that cannot be ignored. While the specific investigation into the Fed Chair has concluded, persistent debates around fiscal discipline continue to weigh on sentiment. Any positive economic data for the US may not translate into dollar strength as effectively as it has in the past.
