The USD/CHF pair fell to approximately 0.8590 during the early European session on Thursday, as the Swiss Franc (CHF) gained strength from the unwinding of carry trades and rising geopolitical tensions in the Middle East. Investors are now keenly awaiting the weekly US Initial Jobless Claims for further direction.
Market sentiment has solidified around the expectation that the US Federal Reserve (Fed) will commence easing its monetary policy in September. Projections include a 50 basis points (bps) rate cut in both September and November, followed by an additional quarter-point reduction in December. Wells Fargo analysts support this view, anticipating two 50 bps cuts at the upcoming Federal Open Market Committee (FOMC) meetings. This more aggressive outlook for rate cuts stems from weaker-than-expected US July employment data, fueling fears of a potential US recession and consequently exerting downward pressure on the US Dollar.
The Swiss Franc has appreciated nearly 4% since mid-July, driven by the global unwinding of carry trades and an influx of safe-haven investments. The geopolitical landscape is tense, with Iran and its proxies reportedly preparing for possible retaliation against Israel, which could occur as soon as Thursday or Friday, according to intelligence reports from CNN.
Domestically, the Swiss National Bank (SNB) has already cut interest rates twice this year and signaled the possibility of further reductions next month. UBS economist Maxime Botteron noted that the recent appreciation of the Franc could lead the SNB to intervene through foreign currency purchases, especially given its current rate-cutting trajectory.
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