The USD/CHF pair traded weaker near 0.8905 during the early European session on Wednesday. The pair’s decline is fueled by growing expectations of U.S. Federal Reserve (Fed) rate cuts this year, which have broadly weakened the Greenback. Traders are now looking ahead to the preliminary U.S. July S&P Global Purchasing Managers Index (PMI) for further direction.
Fed Rate Cut Prospects Weigh on USD
Rising speculation that the Fed will begin easing its monetary policy in September is limiting the Greenback’s upside potential. Markets anticipate two or potentially three rate cuts this year, with the CME FedWatch Tool indicating a nearly 96% probability of a Fed rate cut in September.
However, these odds could shift with the release of key U.S. economic data later this week. Investors are hoping for signs of improvement in the U.S. manufacturing sector, and a stronger-than-expected PMI could mitigate USD/CHF’s downside. The U.S. Gross Domestic Product (GDP) for the second quarter is due on Thursday, followed by the Personal Consumption Expenditures Price Index (PCE) data for June on Friday.
Weak U.S. Economic Data Adds Pressure
Data released on Tuesday showed U.S. Existing Home Sales declined by 5.4% month-over-month in June, dropping from 4.11 million to 3.89 million, below market expectations. Additionally, the Richmond Fed Manufacturing Index fell to -17 in July from -10 previously.
Swiss Franc Outlook and Market Sentiment
The Swiss Franc (CHF) has been pressured in recent sessions by expectations that the Swiss National Bank (SNB) will further cut interest rates in September. FX markets analyst at Ballinger Group, Kyle Chapman, stated that the SNB is anticipated to implement a third rate cut next quarter, with a possible fourth cut in December. Additionally, ongoing political uncertainty in the United States is contributing to USD volatility and increasing demand for safe-haven assets like the CHF.
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