During the early European trading hours on Monday, the USD/CHF pair continues its upward momentum for the third consecutive day, hovering around the 0.9100 mark. The surge in the USD/CHF pair is primarily attributed to the strengthened US Dollar (USD). It’s noteworthy that Swiss markets remain closed due to the Whit Monday bank holiday.
However, despite the bullish run, recent data indicating a softening in US consumer inflation and labor market conditions has sparked speculation regarding potential rate cuts by the Federal Reserve (Fed) in 2024. According to the CME FedWatch Tool, there is a slightly increased probability of the Federal Reserve implementing a 25 basis-point rate cut in September, rising to 49.0% from 48.6% a week ago. Such monetary policy easing by the central bank could potentially undermine the strength of the US Dollar and impede further gains in the USD/CHF pair.
Fed officials have adopted a cautious stance on interest rates, emphasizing that a transient decline in inflation is insufficient to instill confidence in the sustainability of price pressures returning to the targeted 2% rate. Market participants are eagerly awaiting the release of the Federal Open Market Committee (FOMC) minutes scheduled for Wednesday, which are expected to reveal policymakers’ emphasis on maintaining higher interest rates for an extended duration.
On the Swiss front, the yield on the 10-year Swiss government bond has marginally risen to approximately 0.7%. This uptick in Swiss yield typically indicates a likelihood for the Swiss National Bank (SNB) to retain current interest rates, potentially bolstering the Swiss Franc (CHF). Notably, the SNB took markets by surprise in March by implementing its first interest rate cut in nine years, reducing the key interest rate by 25 basis points to 1.50%, marking it as the first major central bank to ease its monetary policy stance.
Traders seeking insights into the Swiss economy will closely monitor the release of the Employment Level data by Swiss Statistics later in the week. Additionally, Swiss National Bank (SNB) Chairman Thomas Jordan is scheduled to deliver a speech on communication, monetary policy, and public impact at the Swiss Media Forum in Lucerne, Switzerland, on Friday, which could offer further guidance on the SNB’s policy outlook.
