The USD/CHF currency pair continued its downward trend for the third straight day, trading around 0.8620 during early European hours on Tuesday. The decline is driven by a weaker U.S. Dollar (USD), influenced by growing expectations of rate cuts from the Federal Reserve (Fed).
Market attention is turning to Fed Chair Jerome Powell’s upcoming speech on Friday, which could provide insights into the future direction of U.S. interest rates. A recent Reuters poll revealed that a slight majority of economists anticipate the Fed will implement a 25 basis point (bps) rate cut at each of the remaining three meetings in 2024. This sentiment has been reinforced by a disappointing July U.S. employment report, prompting traders to increase bets on more significant rate cuts, thereby exerting selling pressure on the USD.
The USD Index (DXY), which tracks the USD against six major currencies, fell to multi-day lows, dipping below the 102.00 support level. Additionally, Minneapolis Fed President Neel Kashkari signaled on Monday that he would consider supporting a rate cut in September due to concerns that the labor market might weaken excessively. This dovish outlook from the Fed is expected to limit any near-term gains for the USD/CHF pair.
Conversely, easing geopolitical tensions in the Middle East may weigh on the Swiss Franc (CHF), potentially supporting the USD/CHF pair. The U.S. recently announced that Israeli Prime Minister Benjamin Netanyahu has accepted a proposal aimed at bridging differences between Israel and Hamas. A de-escalation in the region would likely lead to a rapid reduction in the geopolitical risk premium, potentially affecting the CHF.
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