Market Analysis

The USD/CHF pair remains under pressure, trading in negative territory for the third consecutive day around 0.8620 during the early European session on Tuesday. The US Dollar (USD) faces headwinds due to growing expectations of a rate cut by the Federal Reserve (Fed). Market participants are closely watching Fed Chair Jerome Powell's upcoming speech on Friday, which may provide further clues about the future direction of US interest rates.

According to a recent Reuters poll, a narrow 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 expectation has been fueled by a disappointing July US employment report, prompting traders to increase their bets on more substantial rate cuts, thereby exerting downward pressure on the USD.

The USD Index (DXY), which tracks the USD against a basket of six major currencies, has dropped to multi-day lows, falling below the key 102.00 support level. Additionally, Minneapolis Fed President Neel Kashkari stated on Monday that he is open to cutting US interest rates in September if the labor market shows signs of significant weakening. This dovish sentiment from the Fed is expected to limit the pair's upside potential in the near term.

Conversely, easing geopolitical risks in the Middle East could weigh on the Swiss Franc (CHF) and offer some support to the USD/CHF pair. The United States has indicated that Israeli Prime Minister Benjamin Netanyahu has accepted a bridging proposal aimed at resolving tensions between Israel and Hamas. A reduction in tensions in the Middle East would likely lead to a swift decline in the geopolitical risk premium.

Paraphrasing text from "FX Street" all rights reserved by the original author.