USD/CHF bounces back from 0.8900 as USD rebounds, Fed policy in focus

• USD/CHF recovers from 0.8900, tracing the US Dollar's bounce back.
• The Fed policy remains in the spotlight, in which it is expected to cut interest rates by 25 bps to 4.25%-4.50%.
• On Thursday, the SNB unexpectedly cut its key borrowing rate by 50 bps to 0.5%.

The USD/CHF pair rebounds from the round-level support of 0.8900 in the European session on Monday. The Swiss Franc pair bounces back as the US Dollar (USD) recovers its intraday losses and turns positive, with the US Dollar Index (DXY) ticking higher around 107.00.

Investors brace for a high volatility in the USD counter as the Federal Reserve (Fed) is scheduled to announce its last interest rate decision of the year on Wednesday. Market participants will keenly focus on the Fed's dot plot and the inflation outlook for 2025, with investors remaining confident that the central bank will reduce interest rates by 25 basis points (bps) to 4.25%-4.50%.

The Fed's dot plot will show where the Federal Funds Rate will head in the medium and long term. According to a Bloomberg survey, the Fed is expected to cut interest rates three times in 2025. The Fed's policy-easing cycle would be more gradual next year as economists worry more about rising upside risks to inflation than downside risks to employment.

In today's session, investors will focus on the flash United States (US) S&P Global Purchasing Managers' Index (PMI) data for December, which will be published at 14:45 GMT. The PMI report is expected to show moderate growth in the overall business activity.

Meanwhile, the Swiss Franc (CHF) remains broadly under pressure as investors expect the Swiss National Bank (SNB) to return to an ultra-loose policy trajectory to avoid growing risks to inflation, undershooting the bank's target of 2%.

The SNB surprisingly reduced its key borrowing rates by 50 bps to 0.5% on Thursday, while investors anticipated a usual 25 bps interest rate reduction.