The USD/CHF pair is trading positively around 0.8840 on Thursday, breaking a two-day losing streak during early European trading hours. The modest rebound of the US Dollar (USD) has provided some support to the pair. Traders are now looking ahead to the release of weekly Initial Jobless Claims and the Philly Fed Manufacturing Index for further direction.
Recent dovish comments from Federal Reserve (Fed) officials have heightened expectations of a US interest rate cut in September, potentially limiting the upside for the Greenback in the near term. According to CME’s FedWatch Tool, markets are fully pricing in a rate cut of at least 25 basis points (bps) by the Fed in September. Fed Governor Christopher Waller indicated that the US central bank is nearing an interest rate cut, contingent on stable inflation and employment data. Richmond Fed President Thomas Barkin noted that the easing in inflation is becoming more widespread and expressed a desire to see this trend continue.
Earlier this week, Fed Chair Jerome Powell commented that recent inflation readings “add somewhat to confidence” that the pace of price increases is aligning with the Fed’s target, suggesting a shift towards rate cuts may be imminent.
On the Swiss front, the safe-haven flows driven by political uncertainty and geopolitical tensions might strengthen the Swiss Franc (CHF), posing a challenge for the USD/CHF pair. However, the possibility of further interest rate cuts by the Swiss National Bank (SNB) might weigh on the CHF. Kyle Chapman, FX markets analyst at Ballinger Group, stated, “I expect the SNB to follow up with a third cut next quarter, and there is potential for a fourth in December if there is still high conviction in the restrictive level of monetary policy. The dovish outlook puts the Franc in a vulnerable position over the coming quarters and could hinder any further recovery, particularly if the ECB takes its time in bringing rates down.”
As traders navigate these mixed signals, the interplay between the Fed’s potential rate cuts and the SNB’s monetary policy will be key in determining the future direction of the USD/CHF pair.
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