The euro is on a tear, bolstered by dovish Fed signals and a risk-on mood, while the Swiss franc maintains its strength after a year of intervention. Both currencies face potential clashes between market expectations and central bank stances in the coming year.

Highlights:

• Euro rallies: Driven by risk-on sentiment and expectations of Fed rate cuts next year, the euro surges against the US dollar, reaching a two-month high.
• Dollar under pressure: Anticipation of easier monetary policy in the US weakens the greenback, pushing EUR/USD above 1.11.
• Swiss franc strengthens: The Swissie climbs to its highest level since 2015, benefiting from safe-haven demand and SNB intervention.

Details:

• Euro: The euro has gained over 2% in December and November, fueled by a weaker dollar and improved investor risk appetite. Market expectations of Fed rate cuts as early as March have boosted equity markets and weighed on the US currency.
• US dollar: The greenback faces headwinds from dovish Fed signals and a quiet data calendar between Christmas and New Year’s. The Richmond Manufacturing Index fell short of expectations, adding to the dollar’s woes.
• Swiss franc: The Swissie continues its ascent, gaining over 7% against the dollar in 2023. The SNB’s intervention to weaken the franc has paused for now, allowing the currency to appreciate further.

Technical outlook:

• EUR/USD: Faces resistance at 1.1072 and 1.1130, with support at 1.0982 and 1.0924.
• USD/CHF: Tests support at 0.8518, with further support at 0.8479. Resistance lies at 0.8550 and 0.8559.

The euro and Swiss franc are enjoying a strong run, capitalizing on a shift in investor sentiment and contrasting monetary policy expectations in the US and Europe. The dollar, meanwhile, remains under pressure as markets look ahead to a potential pivot from the Fed in the new year.