USD/CHF advances to near 0.9000, receives support from rising odds of fewer Fed rate cuts

• USD/CHF rises due to rising odds of fewer rate cuts by the Federal Reserve next year.
• The Fed revised its 2025 projections, now anticipating only two rate cuts, down from the previously forecasted four.
• The Swiss Franc may depreciate as SNB President Martin Schlegel suggested that interest rates might dip below zero.

USD/CHF recovers its recent losses from the last two sessions amid thin trading activity following the Christmas holiday, trading around 0.9000 during the European hours on Friday. This upside of the USD/CHF pair could be attributed to a stronger US Dollar (USD), driven by growing expectations of fewer rate cuts by the US Federal Reserve (Fed).

In its December meeting, the Fed reduced interest rates by a quarter point and revised its 2025 projection to include only two rate cuts, down from the previously forecasted four. However, the likelihood of additional rate cuts next year was tempered by moderate US PCE inflation data.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, trades above 108.00, slightly below its highest level since November 2022. However, the upside of the Greenback could be restrained as US Treasury bond yields remain subdued on Friday. 2-year and 10-year yields stand at 4.33% and 4.58%, respectively, at the time of writing.

The USD/CHF pair faced headwinds as the Swiss Franc (CHF) strengthened following the release of Swiss GDP data, which indicated stronger-than-expected economic growth and an acceleration in Q3 on a year-over-year basis. However, recent remarks from Swiss National Bank President Martin Schlegel, suggesting that interest rates in Switzerland might dip below zero, remain fresh in traders' minds.