The USD/CHF pair rebounded to around 0.8415 on Monday, snapping a two-day losing streak during the early European session. However, the upside potential for the pair appears restricted due to growing expectations of more significant interest rate cuts from the US Federal Reserve (Fed). Investors are now focused on upcoming speeches from Fed Chair Jerome Powell and Governor Michelle Bowman, which could provide further guidance on monetary policy.
Recent data showing a slowdown in the US Personal Consumption Expenditures (PCE) Price Index for August has reinforced expectations that the Fed will continue cutting rates as inflation eases toward its 2% target. According to the CME FedWatch Tool, markets are pricing in a 54% chance of a half-point rate cut in November, while the probability of a quarter-point cut stands at 46%. This outlook is likely to keep the US Dollar (USD) under pressure in the near term.
At the same time, geopolitical risks are rising in the Middle East. Israel has escalated its attacks on Hezbollah in Lebanon and the Houthis in Yemen, fueling fears of a broader regional conflict. Hezbollah has vowed to continue fighting despite heavy losses among its senior ranks. Any further escalation in tensions could trigger demand for safe-haven assets like the Swiss Franc (CHF), offering support to the currency.
On the domestic front, the Swiss National Bank (SNB) lowered its key interest rate by 25 basis points to 1.0% last week. Adrian Prettejohn, Europe economist at Capital Economics, commented, “I expect another two 25bp moves in December and March at the very least, primarily because I don’t see any near-term sources of depreciation for the franc without a stronger stance on intervention from the SNB. We are heading back towards zero relatively quickly.” This dovish outlook from the SNB may weigh on the CHF, but geopolitical risks could still drive demand for the currency as a safe haven.
Overall, the USD/CHF pair remains at a crossroads, with Fed rate cuts likely to limit the upside for the USD, while escalating geopolitical tensions could provide ongoing support for the CHF.
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