During the early European session on Wednesday, USD/CHF continued its upward trajectory, hovering around 0.8960. The rally in the pair can be attributed to a stronger US Dollar (USD) bolstered by heightened expectations of delayed interest rate cuts by the Federal Reserve (Fed). According to the CME FedWatch Tool, investors are currently pricing in a 67.7% probability of a Fed rate cut in September, slightly down from 68.5% the previous day.
Reuters reported Fed Governor Michelle Bowman reaffirming her stance on Tuesday that maintaining the policy rate unchanged for an extended period should suffice to tame inflation pressures. In contrast, Fed Governor Lisa Cook indicated that while it would be appropriate to lower interest rates “at some point,” she remained noncommittal on the timing, noting progress in inflation control and a gradual cooling of the labor market.
The USD also garnered support from potential risk aversion, with investors exercising caution ahead of key US economic data releases later in the week. Thursday will see the release of the revised US Gross Domestic Product (GDP) for the first quarter (Q1), followed by the Personal Consumption Expenditure (PCE) Price Index on Friday.
On the Swiss front, the Swiss Franc (CHF) could find backing amidst political uncertainties in France and the resurgence of far-right parties in European Parliament elections, prompting safe-haven flows. Additionally, the yield on the 10-year Swiss government bond has dropped to 0.56%, marking its lowest level since August 2022.
Geopolitical tensions in the Middle East and Ukraine are further fueling demand for safe-haven assets like the CHF. Israeli Prime Minister Benjamin Netanyahu signaled a potential easing of hostilities in Gaza, while Russia condemned a US missile strike in Crimea, labeling it as “barbaric” and resulting in casualties, including children.
These geopolitical dynamics continue to influence market sentiment, supporting the USD/CHF pair amidst broader global uncertainties.
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