Market Analysis

Because of impending US inflation, traders exercise caution and the USD/CHF continues below 0.8500

Amos Simanungkalit · 10 Sep10.4K Views

During European trading hours on Tuesday, USD/CHF edged lower to around 0.8480. This decline can be attributed to the US Dollar (USD) retracting some of its intraday gains, possibly due to improved risk sentiment. Nevertheless, rising US Treasury yields are providing support and limiting further downside for the Greenback.

The US Dollar Index (DXY), which tracks the USD against six major currencies, has maintained slight gains for the third consecutive day, trading near 101.70. Meanwhile, US Treasury yields for 2-year and 10-year bonds are at 3.69% and 3.72%, respectively.

The US Dollar has also been supported by the recent US labor market report, which has heightened uncertainty regarding a potential aggressive rate cut by the Federal Reserve (Fed) in September. According to the CME FedWatch Tool, markets are expecting at least a 25 basis point (bps) rate cut by the Fed in its September meeting. The likelihood of a 50 bps cut has decreased slightly to 29.0%, down from 30.0% a week ago.

In Switzerland, traders will be watching for any statements from Swiss National Bank (SNB) officials this week, as there are no major economic reports scheduled. Recently, Swiss inflation fell to a five-month low, fueling speculation about a potential rate cut by the SNB soon.

Additionally, the SNB’s Foreign Currency Reserves decreased to CHF 694 billion in August from CHF 704 billion in July, marking the fourth consecutive month of decline. This suggests ongoing SNB intervention in currency markets to support the Swiss Franc (CHF).