The US dollar is trading practically flat against the Swiss franc, just below the 0.7940 line, before the US session opens on Friday. The pair has rallied from three-month lows in the 0.7860 area in late December, but ended 2025 down more than 12%.
A combination of market concerns about Trump’s trade policies, signs of declining economic growth and rising inflation in the US economy, and unprecedented attacks from US President Donald Trump on the Federal Reserve have greatly weighed on the US dollar over the past months.
Fed easing hopes keep US dollar gains limited
The US central bank has cut interest rates by 25 basis points at each of its last two monetary policy meetings and expects another rate cut in 2026. Regardless, Chairman Jerome Powell ends his term in May, and Trump is likely to replace him with a more dovish look, which will likely be announced in the coming weeks. This keeps investors confident in a sharper monetary easing cycle.
However, recent macroeconomic numbers in the United States have been somewhat positive. US initial jobless claims unexpectedly fell by 16,000 to 199,000 in the week ending December 26, from an upwardly revised 215,000 the previous week. Previously, pending home sales rose at their highest pace in the past three years.
Later today, the US Standard & Poor’s Global Manufacturing PMI is expected to confirm a moderate slowdown in the sector’s business activity. However, investors will likely wait for the December non-farm payrolls report, which has been postponed to next week, to get a better assessment of the Fed’s interest rate path.
performance
In Switzerland, leading KOF indicators revealed an unexpected improvement, to 103.4 in December, from 101.7 in December, the highest level in more than a year, indicating stronger growth ahead. Swiss economic institute KOF stressed the strong performance of the manufacturing and construction sectors, although it warned of signs of weakness in demand-side indicators.
Frequently asked questions about the US dollar
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a large number of other countries where it is traded alongside local banknotes. It is the world’s most traded currency, accounting for more than 88% of total global forex trading volume, or an average of $6.6 trillion in transactions per day, according to 2022 data. After World War II, the US dollar took the place of the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement in 1971 when the gold standard disappeared.
The most important factor affecting the value of the US dollar is monetary policy, which is shaped by the Federal Reserve. The Fed has two missions: achieving price stability (controlling inflation) and promoting full employment. The basic tool for achieving these two goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, the Fed will raise interest rates, which helps the value of the US dollar. When the inflation rate falls below 2% or when the unemployment rate is very high, the Fed may cut interest rates, which affects the dollar.
In extreme cases, the Fed could also print more dollars and activate quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used when credit dries up because banks will not lend to each other (due to fear of the counterparty defaulting). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It has been the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy U.S. government bonds mostly from financial institutions. Quantitative easing usually leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding in new purchases. It is usually positive for the US dollar.
