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USD/CHF drops below 0.9000, US CPI looms

  • USD/CHF loses momentum around 0.8995 in early European trading on Thursday.
  • Fed’s Powell said the case for interest rate cuts is strengthening as inflation data showed some modest further gains.
  • Political uncertainty in Europe and globally could boost safe-haven flows, benefiting the CHF.

The USD/CHF pair is trading with slight losses near 0.8995, snapping the three-day winning streak during the early European session on Thursday. Rising expectations of Federal Reserve (Fed) rate cuts drag the pair lower. Traders are awaiting the US Consumer Price Index (CPI) inflation data for June on Thursday, which is expected to show a 3.1% year-on-year increase in June.

Comments from Fed Chair Jerome Powell continue to weaken the dollar as traders see the U.S. central bank starting its rate-cutting cycle in September. Powell said in his Tuesday testimony before Congress that the case for interest rate cuts is strengthening as the most recent inflation data showed some modest further gains. He further stated that “more good data” could open the door to interest rate cuts.

However, softer CPI inflation data for June could fuel expectations for rate cuts in September, which could put some selling pressure on the dollar. Financial markets are now pricing in less than 10% chance of a Fed rate cut in July, while the expectation for a cut in September stood at 73%, according to the CME FedWatch Tool.

On the Swiss front, speculation that the Swiss National Bank will cut interest rates further could weigh on the CHF. Kyle Chapman, FX market analyst at Ballinger Group, said “I expect the SNB to follow up with a third cut next quarter, and there is potential for a fourth in December if there is still high conviction in the tight level of monetary policy. The dovish outlook puts the franc in a vulnerable position in the coming quarters and could hamper any further recovery, particularly if the ECB takes its time in lowering rates.” Elsewhere, political uncertainty in Europe and elsewhere could boost the safe-haven Swiss Franc (CHF).

Source: Fx Street

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