The USD/CHF pair saw a resurgence near the 0.8500 psychological mark on Tuesday, rebounding from its lowest level since early January. As of the early European session, the pair has snapped a five-day losing streak, trading just above the mid-0.8500s.
This recovery is driven by a sharp rise in global equity markets, spurred by bargain buying following recent steep losses, which has diminished demand for the safe-haven Swiss Franc (CHF). Concurrently, a risk-on sentiment has led to a solid bounce in US Treasury bond yields, aiding the US Dollar (USD) to recover from a multi-month low hit on Monday. Despite these gains, a significant appreciation of the USD/CHF pair remains elusive.
Concerns over a potential downturn in the US economy, fueled by incoming softer macro data, have heightened expectations for more substantial interest rate cuts by the Federal Reserve. Markets are now almost certain of a 50 basis points rate cut at the September FOMC policy meeting. This sentiment could limit the rise in US bond yields and prevent USD bulls from making aggressive bets, thus capping gains for the USD/CHF pair.
Geopolitical tensions also add to the cautious market sentiment. The risk of a broader Middle East conflict has resurfaced after Iran, Hamas, and Hezbollah pledged retaliation against Israel for the assassination of Hamas political chief Ismail Haniyeh in Tehran. These developments may support the CHF and suggest caution before anticipating any further significant moves in the USD/CHF pair, especially in the absence of relevant US macroeconomic data.
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