USD/CHF faces a sharp sell-off near 0.8500 as the SNB cuts interest rates by 25 basis points to 1%.

• USD/CHF falls sharply from 0.8500 as the SNB cuts its key interest rates by 25bp for the third consecutive meeting.
• The SNB was expected to cut interest rates due to the low inflation environment.
• Investors are looking to US PCE inflation for further guidance on Fed interest rates.

The USD/CHF pair is falling sharply from the psychological resistance of 0.8500 in the European session on Thursday. The Swiss Franc asset is facing selling pressure as the Swiss National Bank (SNB) cuts interest rates by 25 basis points (bps) to 1%. This is the third consecutive 25 bps interest rate cut by the SNB.

The SNB was widely expected to cut its key interest rates further as inflationary pressures in the Swiss economy have settled deeper than the bank’s 2% target. The annual Swiss Consumer Price Index (CPI) has slowed to 1.1% in August.

Meanwhile, the US Dollar (USD) is holding on to Thursday’s recovery move as Federal Reserve (Fed) policymakers, including Chairman Jerome Powell, line up to comment on the economy and the interest rate outlook. Fed policymakers’ comments will indicate whether the central bank will deliver a second consecutive larger-than-usual 50 bps rate cut in November or slow the policy easing cycle by reducing interest rates at a gradual pace of 25 bps.

At last week’s policy meeting, the Fed kicked off the rate-cutting cycle with a 50bp reduction in interest rates as policymakers were concerned about the deteriorating pace of job growth.

The CME FedWatch tool shows the chance of the Fed cutting interest rates by 50 bps to 4.25%-4.50% in November has risen to 61% from 39% a week ago.

On the economic front, investors are awaiting the US Personal Consumption Expenditure (PCE) Price Index data for August, due out on Friday. Annual core inflation for August is estimated to have been lower than expected. PCEa preferred measure of inflation by the Fed, grew at a faster pace of 2.7% from 2.6% in July.