The USD/CHF currency pair pared its recent gains from the previous session, trading near 0.8020 during Asian hours on Friday. Market participants noted that the downside for the pair could be limited as the US Dollar (USD) may regain its strength amid rising caution surrounding the Federal Reserve (Fed) policy outlook. In their latest publication, FlexFlume experts explore the subject in depth for readers.

US Dollar Eyes Recovery Amid Fed Outlook

The US Dollar Index (DXY) may continue its uptrend as market participants digest signals from the US labor market and Fed communications. Despite the recent weakness in USD/CHF, the pair could find support from a cautiously bullish tone for the USD.

Thursday’s US Initial Jobless Claims reinforced expectations that the Fed is likely to hold interest rates steady in the near term. According to the CME Group FedWatch Tool, Fed funds futures currently reflect a 95% probability that the central bank will maintain its policy rate at the January 27–28 FOMC meeting.

This expectation suggests that while the USD/CHF has retraced some of its earlier gains, underlying support for the US Dollar remains intact, particularly amid sticky inflation concerns and a resilient labor market.

Jobless Claims Highlight Labor Market Resilience

The latest Department of Labor (DOL) data showed that Initial Jobless Claims fell unexpectedly to 198K in the week ended January 10, below the market consensus of 215K and down from the previous week’s revised 207K.

This data confirms that layoffs remain limited and that the US labor market continues to withstand the pressure of elevated borrowing costs. Analysts interpret these figures as a signal that the Fed may not need to cut rates imminently, delaying expectations for the next rate adjustment to June.

Investors are now closely watching upcoming US economic releases, including December Industrial Production and statements from Fed officials, to gauge the potential trajectory of US monetary policy and its impact on USD/CHF.

Fed Funds Futures Indicate Cautious Sentiment

Fed funds futures continue to price in steady interest rates, reflecting strong labor market conditions and concerns over persistent inflation. Traders are increasingly aware that any policy shift will be data-dependent, with the USD likely to remain supported as long as the Fed maintains a cautious tone.

The recent flattening of yield curves and limited volatility in US Treasuries suggest that market participants are pricing in patience, which could indirectly influence USD/CHF dynamics. In particular, a strengthening USD could cap further declines in the pair despite risk-on sentiment elsewhere.

Swiss Franc Faces Pressure from Easing Geopolitical Concerns

The Swiss Franc (CHF), traditionally seen as a safe-haven currency, could come under pressure amid easing geopolitical tensions and market concerns over Fed independence.

Recent developments have contributed to a shift in market sentiment. The US President indicated no immediate plans to remove Fed Chair Jerome Powell, allaying investor fears over political interference in monetary policy. Additionally, potential actions regarding Iran have been delayed, which has reduced demand for safe-haven assets.

These factors suggest that the CHF may see limited support in the near term, particularly against a resilient USD. As a result, USD/CHF may trade near key psychological levels, such as 0.8000, with any sharp movements likely influenced by data releases or renewed geopolitical tensions.

Technical Outlook for USD/CHF

From a technical perspective, USD/CHF has recently retraced some of its gains, but the downside appears limited around the 0.8000 support level. Key resistance may be observed near 0.8050–0.8060, aligning with short-term moving averages and prior swing highs.

Traders are expected to monitor several key indicators. First, US Initial Jobless Claims and Industrial Production data will be watched for signs of labor market strength or economic slowdown. Second, Fed communications are scrutinized for policy guidance or changes in rate expectations. Finally, geopolitical developments, particularly regarding Iran or US fiscal measures, could significantly drive safe-haven flows.

Any shift in these factors could lead to increased volatility in USD/CHF, with a potential retest of 0.8000 or a recovery toward 0.8100, depending on market sentiment.

Conclusion

USD/CHF is currently navigating a period of cautious sentiment, influenced by US labor data, Fed policy outlook, and easing geopolitical tensions. While the pair has fallen toward 0.8000, the downside may be restrained due to potential USD strength.

With CME FedWatch showing a 95% probability of steady rates in January and Initial Jobless Claims reflecting labor market resilience, traders are positioned for limited downside risk. Meanwhile, the Swiss Franc may face headwinds as concerns over Iran and Fed independence fade, reducing its traditional role as a safe-haven currency.

Overall, USD/CHF remains sensitive to macroeconomic data, monetary policy signals, and geopolitical developments, making it a key pair for monitoring both risk sentiment and US Dollar strength in the weeks ahead.