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• USD/CHF loses traction around 0.8590 in Thursday’s early European session, down 0.30% on the day. 
• The US Fed is expected to cut rates more aggressively beginning in September.
• Strong safe-haven demand benefits the Swiss Franc against the Greenback. 

The USD/CHF pair drifts lower to near 0.8590 during the early European session on Thursday. The Swiss Franc (CHF) gains traction from the unwinding of carry trades and escalating geopolitical tensions in the Middle East. Investors await the weekly US Initial Jobless Claims on Thursday for fresh impetus.

Investors have fully expected the US Federal Reserve (Fed) to start easing its monetary policy in September, with 50 basis points (bps) cuts in both September and November, and another quarter-point cut in December. Wells Fargo analysts are now projecting two 50 bps rate cuts at the FOMC meetings in September and November. More aggressive rate cut expectations from the Fed are triggered by the weaker-than-expected US July employment data last week, which raised the fears of a looming US recession. This, in turn, exerts some selling pressure on the Greenback broadly. 

The Swiss Franc has surged almost 4% since mid-July amid a global unwinding of carry trades and safe-haven flows. Iran and its proxies are preparing for a potential retaliation against Israel. The latest intelligence noted that any response may be delayed until Thursday or Friday, according to CNN late Wednesday.

The Swiss National Bank (SNB) has cut interest rates twice this year and hinted at reducing more rates next month. UBS economist Maxime Botteron said at a time when the SNB is cutting interest rates, the Franc's appreciation over the last few days could prompt foreign currency purchases by the bank.

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