USD/CHF drops near 0.8550 as traders expect a half-basis point rate cut from the Fed

• USD/CHF is depreciating due to the increasing probability of a 50 basis point rate cut by the Fed on Wednesday.
• Lower Treasury yields contribute to downward pressure on the US Dollar.
• The strong Swiss franc fuels speculation that the SNB could implement a significant rate cut in 2024.

The USD/CHF pair is extending its decline for the third consecutive session, trading around 0.8550 during the Asian hours on Monday. This decline in the USD/CHF pair could be attributed to the increasing chances of the US Federal Reserve opting for a 50 basis point rate cut at its next monetary policy meeting scheduled for Wednesday.

The US Dollar (USD) is facing challenges as Treasury yields decline. The Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, is trading around 100.80 with 2-year and 10-year US Treasury bond yields standing at 3.58% and 3.65%, respectively, at the time of writing.

On the data front, the University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, beating market expectations for a reading of 68.0 and marking a four-month high. The increase reflects a gradual improvement in consumers’ outlook on the U.S. economy after months of declining economic expectations, data showed Friday.

The Swiss Franc (CHF) is showing strength, fuelling speculation that the Swiss National Bank (SNB) could be the first major central bank to implement a significant rate cut this year. Economists predict that the SNB could announce a 25 basis point rate cut at its September meeting.

In addition, Swiss inflation fell to 1.1% year-on-year in August, raising speculation about a possible rate cut. Traders are expected to closely monitor this week’s trade balance data to assess Swiss economic conditions.