USD/CHF Extends Losses Amid Rising Fed Rate Cut Prospects

The USD/CHF pair continues its decline for the fourth consecutive trading day on Monday, staying below the key psychological level of 0.9000. This decline is primarily driven by a weakening US Dollar (USD) amid increasing speculation that the Federal Reserve (Fed) will shift towards policy normalization starting from the September meeting.

The US Dollar Index (DXY), which measures the USD against six major currencies, found temporary support near a three-week low around 104.85. Meanwhile, the 10-year US Treasury yields edged higher to 4.3% but remained close to their weekly low.

The growing expectations for the Fed to cut interest rates sooner than previously anticipated have negatively impacted the USD and bond yields. In the latest dot plot, Fed officials indicated only one rate cut for this year, expected in the last quarter. However, the possibility of the Fed lowering interest rates as early as September has increased, partly due to signs of moderating strength in the US labor market. The Nonfarm Payrolls (NFP) report for June showed the Unemployment Rate rising to 4.1%, while annual Average Hourly Earnings, an indicator of wage inflation, decelerated as expected to 3.9%. Although the payrolls data exceeded estimates, it remained below May’s figures.

This week, investors are particularly focused on the US inflation data for June, scheduled to be released on Thursday. This data will be crucial in shaping expectations for future Fed policy moves.

On the Swiss Franc front, easing inflationary pressures could prompt the Swiss National Bank (SNB) to consider further interest rate reductions. The annual Swiss Consumer Price Index (CPI) decelerated to 1.3% in June, slightly below economists’ expectations of a steady growth rate of 1.4%. This decline in inflation suggests that the SNB might continue its trend of reducing interest rates to manage economic conditions effectively.

Overall, the combination of a potentially dovish Fed and easing inflation in Switzerland is creating a complex trading environment for the USD/CHF pair. Market participants will closely watch upcoming economic indicators and central bank communications to navigate these dynamics. The key factors to monitor include the US inflation data and any further signals from the Fed regarding their policy direction, which could significantly impact the future trajectory of the USD/CHF pair.