USD/CHF holds above 0.8400 as traders await Fed Powell speech

• USD/CHF remains in positive territory near 0.8415 in the early European session on Monday.
• Increasing bets on more Fed rate cuts and geopolitical tensions in the Middle East could weigh on the pair.
• Traders are preparing for Fed Chairman Jerome Powell’s speech on Monday.

The USD/CHF pair recovers around 0.8415, breaking the two-day losing streak during the early European session on Monday. However, the pair’s upside could be limited amid bets on further big rate cuts by the US Federal Reserve (Fed). Traders will take further cues from Fed Chair Jerome Powell and from Gov. Michelle Bowman later Monday.

Personal Consumption Expenditure Price Index (PCE) inflation data for August has led traders to bet that the Fed will continue a rapid pace of rate cuts as price pressures ease toward its target of 2%. This, in turn, will likely weaken the US Dollar (USD) in the short term. The CME’s FedWatch tool showed that markets are pricing in a nearly 54% probability of a half-point cut in November, while the probability of a quarter-point cut stands at 46%.

Meanwhile, Israel expanded its attacks against Hezbollah in Lebanon and the Houthis in Yemen, raising fears of a regional war as Hezbollah said it will continue fighting even as it faces mounting losses in its senior ranks. Traders will closely watch the development of geopolitical risks. Any sign of escalating tensions in the Middle East could increase demand for safe haven flows, benefiting the Swiss Franc (CHF).

The Swiss National Bank (SNB) decided to reduce its borrowing costs last week, bringing its key interest rate down by 25 basis points to 1.0%. “I expect at least two more 25 basis point moves in December and March, mainly because I don’t see any near-term source of depreciation for the franc without a stronger stance on SNB intervention. We are heading back towards zero relatively quickly, “said Adrian Prettejohn, Europe economist at Capital Economics.