USD/CHF Price Forecast: Bounces back amid fears of widening Fed-SNB policy divergence

• USD/CHF recovers strongly from 0.8965 as investors expect the Fed-SNB policy divergence to widen further.
• The Fed is expected to keep interest rates steady in the policy announcement on Wednesday.
• The safe-haven demand of the US Dollar increases in a risk-aversion environment.

The USD/CHF pair rebounds strongly, slightly above the key hurdle of 0.9050 in Tuesday's North American trading hours after a two-week-long correction to near 0.8965. The Swiss Franc pair strengthens as the US Dollar (USD) resumes its upside journey in a jittery market environment.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, soars to near 108.00. Investors rushed to the US Dollar as global technology stocks melted down on the assumption that Chinese DeepSeek's low-cost Artificial Intelligence (AI) model would reduce the technology gap between China and the United States (US).

Meanwhile, investors have underpinned the US Dollar against the Swiss Franc (CHF) amid expectations that the Federal Reserve (Fed) will announce a pause in the current policy-easing cycle in the policy announcement on Wednesday. On the contrary, the Swiss National Bank (SNB) could push its borrowing rates into the negative territory to avoid growing risks of inflation undershooting the central bank's range of 0%-2%. This would widen the policy divergence between the Fed and the SNB.

In the Fed's monetary policy announcement, investors will look for cues about how long the central bank will keep interest rates steady.

USD/CHF is on track to revisit its 15-month high, around 0.9200. The outlook of the Swiss Franc pair remains firm as the 20-week Exponential Moving Average (EMA) near 0.8900 is sloping higher.

The 14-week Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum.

For a fresh upside toward the round-level resistance of 0.9300 and the 16 March 2023 high of 0.9342, the asset needs to break decisively above the October 2023 high of 0.9244.

On the flip side, a downside move below the psychological support of 0.9000 would drag the asset towards the November 22 high of 0.8958, followed by the December 16 low of 0.8900.

USD/CHF weekly chart