USD/CHF trades with caution near 0.8000 amid increased speculation of a Federal Reserve rate cut. The Swiss Franc faces selling pressure as expectations rise for the Fed to reduce interest rates this year. Currently, the US Dollar Index hovers around 99.55, nearing its weekly low of 99.30 seen on Tuesday.
On Tuesday, the US Dollar declined following the ADP Employment Change report, causing dovish Fed expectations. The report showed a four-week average of 11.25K layoffs, raising concerns about the labour market’s strength.
Rising Probability of a Rate Cut
The CME FedWatch tool indicates a 68% chance of a 25 bps rate cut in December, up from 62.4% on Monday. Meanwhile, the Swiss Franc remains firm as expectations for the Swiss National Bank turning to negative rates recede.
Globally, the US and Switzerland are nearing a trade agreement, with discussions of Washington reducing tariffs on Swiss imports to 15%. The US Dollar remains the most traded currency, involved in over 88% of global foreign exchange transactions, and is influenced by the Federal Reserve’s monetary policy decisions. Quantitative easing tends to weaken the USD, while quantitative tightening usually strengthens it.
Given the high probability of a Federal Reserve rate cut in December, we see continued downward pressure on the US Dollar. Recent data confirms this view, with the October Non-Farm Payrolls report adding only 145,000 jobs and the latest Consumer Price Index cooling to 3.0%, both missing market expectations. The CME FedWatch tool now shows a 68% chance of a cut, which should keep bearish sentiment on the dollar intact for the coming weeks.
Strong Swiss Franc Outlook
On the other side of the trade, the Swiss Franc remains strong. The Swiss National Bank has signaled confidence in rising inflation, which is currently holding at 1.9%, making a shift to negative rates highly unlikely. The impending trade deal between the US and Switzerland, expected within two weeks, provides another bullish catalyst for the Swiss economy and its currency.
For derivative traders, this environment suggests positioning for further USD/CHF weakness. Buying put options with January 2026 expiries would allow us to profit from a move lower through the Fed’s December meeting and beyond. Implied volatility will likely increase heading into that meeting, so establishing positions now could be advantageous.
The 0.8000 level is a significant psychological support, and a sustained break below this could accelerate the decline toward lows not seen since the major currency event of 2015. We could consider bearish risk-reversal strategies, which involve buying put options and financing them by selling out-of-the-money call options. This structure allows for a cost-effective way to position for a continued grind lower in the pair.
