USD/CHF fell modestly around 0.8995, snapping a three-day winning streak in early European trading Thursday. Heightened bets on a rate cut from the Federal Reserve (FED) dragged the pair lower. Traders awaited the U.S. Consumer Price Index (CPI) inflation data for June, due on Thursday.
Comments from Federal Reserve Chairman Jerome Powell continued to weigh on the dollar as traders bet that the U.S. central bank will begin a rate cut cycle in September. Powell testified before Congress on Tuesday that the case for a rate cut is becoming stronger as recent inflation data showed some modest further progress. He further said that “more good data” could open the door to a rate cut.
However, softer CPI inflation data for June could fuel expectations of a rate cut in September, which could put some selling pressure on the dollar. Financial markets are currently pricing in less than 10% for a July rate cut from the Federal Reserve, while expectations for a September rate cut are at 73%, according to the CME FedWatch Tool.
In Switzerland, speculation that the Swiss National Bank will cut rates further could weigh on the Swiss franc. “I expect the Swiss National Bank to make a third rate cut next quarter, with a fourth cut possible in December if confidence in the restrictive level of monetary policy remains high,” said Kyle Chapman, FX market analyst at Ballinger Group. The dovish outlook puts the Swiss franc in a weak position in the coming quarters and could hamper its further recovery, especially if the ECB takes its time lowering rates.
