USD/CHF Extends Losing Streak As Fed Rate Cut Prospects Improve

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  • USD/CHF falls below 0.9000 amid a weak US Dollar.
  • The Fed is expected to start lowering interest rates in September.
  • Easing Swiss inflation has boosted prospects of more rate cuts by the SNB.

The USD/CHF pair extends its losing streak for the fourth trading day on Monday. The Swiss Franc asset stays below the psychological figure of 0.9000 as the US Dollar’s (USD) outlook appears to be vulnerable due to growing speculation that the Federal Reserve (Fed) will pivot to policy normalization from the September meeting.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, finds a temporary support near three-week low around 104.85. 10-year US Treasury yields edge higher to 4.3% but trades close to weekly low.

Improves expectations for the Fed reducing interest rates earlier than previously anticipated is unfavorable for the US Dollar and bond yields. In the latest dot plot, Fed officials signalled only one rate cut this year and policymakers have forecasted that in the last quarter.

The possibility of the Fed lowering interest rates from September has strengthened due to moderating United States (US) labor market strength as indicated by the Nonfarm Payrolls (NFP) report for June. The report showed that the Unemployment Rate rose to 4.1% and annual Average Hourly Earnings, a measure of wage inflation, decelerated expectedly to 3.9%. While payrolls data beat estimates but remained below May’s reading.

This week, investors will keenly focus on the US inflation data for June, which will be published on Thursday.

On the Swiss Franc front, easing inflationary pressures could force the Swiss National bank (SNB) to continue reducing interest rates further. Annual Swiss Consumer Price Index (CPI) decelerated to 1.3% in June, while economists expected price pressures to have grown steadily by 1.4%.

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