The USD/CHF pair continued its upward trend, nearing 0.8870 during the early European session on Tuesday, buoyed by a stronger US Dollar (USD). However, caution prevails in the market ahead of the US Federal Reserve’s (Fed) interest rate decision on Wednesday.
Federal Reserve Outlook
The Federal Reserve is holding monetary policy meetings this week, with no change in rates expected. However, market sentiment anticipates the Fed will begin easing its policy in September. With inflation easing faster than expected in June, the market has priced in nearly 64% odds that the Fed will cut rates three times this year — in September, November, and December, according to the CME FedWatch Tool.
“Currently, a modest 25 basis point cut in September seems likely. If successful, two additional 25 basis point cuts could follow before the end of 2024,” stated Jacob Channel, chief economist at LendingTree. Traders will seek further guidance from Fed Chair Jerome Powell during the post-meeting press conference. Dovish comments from Fed officials might weaken the Greenback, limiting the upside for the USD/CHF pair.
Swiss Franc‘s Safe-Haven Appeal
On the Swiss front, the uncertainty surrounding the U.S. presidential race, fears of a Chinese economic slowdown, and ongoing geopolitical tensions in the Middle East could increase safe-haven flows into the Swiss Franc (CHF). The Swiss KOF Leading Indicator for July is due on Tuesday, followed by the release of Switzerland’s Consumer Price Index (CPI) on Friday, which is projected to show a 1.3% year-on-year increase for June.
Market Sentiment and SNB Policy
Traders remain cautious about betting on a stronger CHF as long as the Swiss National Bank (SNB) maintains its current rate policy. The likelihood of a further rate cut in September has surged to nearly 90%, compared to around 37% just two weeks ago.
Conclusion
While the USD/CHF pair extends its rally, market participants are closely watching the Fed’s upcoming interest rate decision and comments from Fed Chair Jerome Powell for further direction. Simultaneously, the CHF’s safe-haven status is bolstered by global uncertainties, though future movements will also depend on the Swiss National Bank’s policy actions.
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