The USD/CHF currency pair advanced for the second consecutive day, trading around 0.8880 during the European session on Friday. This rebound follows a four-month low of 0.8820 reached on Thursday, driven by the strengthening of the US Dollar in response to increased risk aversion.
The US Dollar’s gains are supported by rising US Treasury yields. The US Dollar Index (DXY), which tracks the currency against six major peers, is currently trading around 104.30. Meanwhile, US Treasury yields stand at 4.46% for the 2-year bond and 4.19% for the 10-year bond.
However, the potential for further USD appreciation may be limited by weaker labor data, which is heightening market expectations for a Federal Reserve (Fed) rate cut in September. According to CME Group’s FedWatch Tool, there is now a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, an increase from 85.1% the previous week.
Initial Jobless Claims data released on Thursday showed a larger-than-expected increase, with 243,000 new claims for the week ending July 12, compared to the anticipated 230,000 and up from the previous week’s revised 223,000.
On the Swiss side, expectations that the Swiss National Bank (SNB) may further lower interest rates could pressure the Swiss Franc (CHF). In June, the SNB cut its key interest rate by 25 basis points for the second consecutive meeting due to subdued inflationary pressures and the CHF’s resilience.
Kyle Chapman, FX markets analyst at Ballinger Group, commented, “I anticipate the SNB will implement a third rate cut next quarter, with a potential fourth cut in December if the restrictive monetary policy remains strongly justified.”
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