During the early European session on Monday, the USD/CHF pair exhibited a lack of direction as the US Dollar (USD) consolidated. Trading near 0.8535, the pair experienced a marginal decline of 0.04% on the day. Investors appeared hesitant to make significant moves, opting to remain on the sidelines ahead of the upcoming US Federal Open Market Committee (FOMC) monetary policy meeting scheduled for Wednesday, where no rate change is expected.
Market sentiment regarding the FOMC’s interest rate decision remains cautious, with prevailing expectations that the benchmark rates will remain steady within the 5.25%–5.50% range for March. However, futures markets indicate a probability of approximately 75% for a rate cut in July, as per the CME FedWatch Tools. Nevertheless, the prevailing narrative of prolonged higher interest rates in the US could potentially bolster the Greenback, offering support to the USD/CHF pair in the short term.
In economic data releases, the University of Michigan reported a slight drop in the Consumer Sentiment Index to 76.5 in March, slightly below both the previous reading and market expectations. Conversely, one-year and five-year inflation expectations remained unchanged at 3.0% and 2.9%, respectively. Industrial Production managed a modest recovery, rising to 0.1% MoM in February following a 0.5% MoM decline in January.
Geopolitical tensions in the Middle East also weighed on market sentiment, with reports of Israeli airstrikes in southern Lebanon and retaliatory actions by Hezbollah near the village of Wazzani. Such developments could drive demand for safe-haven assets like the Swiss Franc (CHF), potentially limiting the upside potential of the USD/CHF pair.
Looking ahead, the focus shifts to the Swiss National Bank (SNB), expected to maintain its interest rates unchanged on Thursday. However, Bloomberg economists anticipate a sooner-than-expected rate cut, with a potential reduction of 25 basis points (bps) as early as June.
Furthermore, market participants will monitor the release of the Swiss Trade Balance for February on Tuesday, followed by the pivotal FOMC rate decision on Wednesday. Subsequently, attention will turn to the SNB’s interest rate decision on Thursday, with these events likely providing clarity and direction for the USD/CHF pair.
