The USD/CHF pair climbs to a fresh two-week high near 0.8900 after the Swiss franc tumbles following a surprise decision by the Swiss National Bank (SNB) to cut its key interest rate by 50 basis points (bps) to 0.5%. This marks the SNB’s fourth consecutive rate cut but its first larger-than-expected move, as markets had anticipated a smaller reduction of 25 bps to 0.75%.

SNB Chairman Martin Schlegel’s dovish comments at a late-November event in Zurich set the stage for a rate cut. Schlegel emphasized the central bank’s openness to further easing, including the possibility of negative rates. These remarks aligned with Switzerland’s subdued inflation environment, as annual Consumer Price Index (CPI) growth decelerated to 0.6% in October, remaining within the SNB’s target range of 0%-2% since mid-2023.

In contrast, the US Dollar (USD) trades slightly lower as market participants price in a 25-bps rate cut by the Federal Reserve (Fed) at its policy meeting on Wednesday. The USD’s modest pullback follows the November Consumer Price Index (CPI) report, which showed headline and core inflation in line with expectations at 2.7% and 3.3%, respectively. The data suggests that inflationary pressures in the US are moderating, reinforcing the likelihood of a cautious Fed policy approach.

The US Dollar Index (DXY), which measures the USD against a basket of major currencies, edges down to 106.50, reflecting tempered sentiment ahead of the Fed’s announcement.

Trade Idea:

Buy USD/CHF near 0.8880, targeting 0.8950 with a stop-loss at 0.8840. Consider upside potential if the SNB signals additional dovish measures or if the Fed adopts a more cautious stance.