USD/CHF extends losing streak as Fed rate cut outlook improves

• USD/CHF drops below 0.9000 amid weak US Dollar.
• The Fed is expected to begin lowering interest rates starting in September.
• Moderating Swiss inflation raises prospects for further rate cuts by the SNB.

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

The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, finds temporary support near the three-week low around 104.85. US 10-year Treasury yields rise to 4.3%, but are trading near the weekly low.

Improved expectations that the Fed will cut interest rates sooner than previously anticipated are unfavorable for the US dollar and bond yields. In the latest dot plot, Fed officials have signaled only one rate cut this year and policymakers have forecast it will be in the fourth quarter.

The possibility of the Fed cutting interest rates as early as September has strengthened due to the moderation in the strength of the US labor market 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, slowed as expected to 3.9%. Although the payrolls data beat estimates, it remained below the May reading.

This week, investors will focus on US inflation data for June, due out on Thursday.

On the Swiss franc front, easing inflationary pressures could force the Swiss National Bank (SNB) to continue to cut interest rates further. The annual Swiss Consumer Price Index (CPI) slowed to 1.3%, while economists had expected price pressures to have grown steadily by 1.4%.