Market Analysis

The USD/CHF pair is holding steady near 0.8545 during early European trading on Wednesday, supported by a slight rebound in the Greenback. However, the potential for further gains in the pair may be capped by growing expectations that the US Federal Reserve (Fed) will lower interest rates in its September meeting. Traders are closely watching the release of the July Federal Open Market Committee (FOMC) minutes later today.

The US monetary policy is approaching a critical juncture. The extent and pace of rate cuts during this easing cycle will be contingent on incoming economic data. According to the CME FedWatch Tool, the probability of a 25 basis point rate cut in September is currently priced at approximately 67.5%, down from 76% the previous day. The likelihood of a 50 basis point cut has decreased to 32.5% from 53.0% last week.

Fed Governor Michelle Bowman emphasized her cautious approach to policy changes on Tuesday, warning against overreacting to single data points which could undermine recent progress. Fed Chair Jerome Powell's upcoming speech at the Jackson Hole Symposium on Friday may provide further insights into the Fed’s future policy direction. The increasing likelihood of rate cuts and the Fed's dovish stance are expected to weigh on the USD against the Swiss Franc (CHF).

The Swiss National Bank (SNB) had previously raised its policy rate to 1.75% before initiating rate cuts starting in March. Bloomberg's survey of economists suggests one more 25 basis point cut in September, though traders are anticipating additional easing. Additionally, ongoing economic uncertainties and geopolitical tensions in the Middle East could enhance safe-haven flows, benefiting the Swiss Franc.

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