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• USD/CHF holds positive ground around 0.8870 in Tuesday’s early European session. 
• The Fed is expected to hold the rate at the current level of 5.25% to 5.50% on Wednesday.
• Uncertainty and the ongoing Middle East geopolitical tensions are likely to cap the Swiss Franc’s downside. 

The USD/CHF pair extends the rally near 0.8870 during the early European session on Tuesday. The stronger US Dollar (USD) broadly provides some support to the pair. The market might turn cautious ahead of the US Federal Reserve (Fed) Interest Rate Decision on Wednesday.

The Federal Reserve will hold monetary policy meetings this week, with no change in rate expected. However, the markets widely anticipate the Fed will start easing its policy at its following meeting in September. With inflation easing faster than estimated in June, the markets have priced in nearly 64% odds that the Fed will cut rates three times this year — in September, November and December, according to the CME FedWatch.

"At the moment, a modest cut of 25 basis points in September seems likely. If that goes well, we could even see two additional 25 basis point cuts before 2024 comes to an end," said Jacob Channel, chief economist at LendingTree. Traders will take more cues from Fed Chair Jerome Powell during the press conference for the interest rate outlook. If the Fed officials deliver dovish comments, this might drag the Greenback lower and cap the upside for the pair. 

On the Swiss front, uncertainty over the trajectory of the U.S. presidential race, the fear of a Chinese economic slowdown, and the ongoing geopolitical tensions in the Middle East might boost safe-haven flows, benefiting the Swiss Franc (CHF). Looking ahead, the Swiss KOF Leading indicator for July is due on Tuesday.  On Friday, Switzerland’s Consumer Price Index (CPI) will be released, which is projected to show an increase of 1.3% YoY in June.

Traders would be cautious about betting on an even stronger CHF as long as the Swiss National Bank (SNB) does not initiate a change of rate direction. A further rate cut in September is now priced in nearly 90%, compared with just around 37% two weeks ago.

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