- USD/CHF falls for the third consecutive day amid prevailing selling bias around the USD.
- Mounting bets on a Fed rate cut in September continue to weigh on the dollar.
- The downside potential is likely to remain limited as traders await the release of the US NFP.
The USD/CHF pair remains under some selling pressure for the third consecutive day and drops to a multi-day low below the psychological 0.9000 level during the Asian session on Friday. Bearish traders now look for a sustained downside break through the 100-day simple moving average (SMA) before positioning for an extension of the recent pullback from a one-month peak touched earlier this week amid sustained selling in the US Dollar (USD).
Softer US macroeconomic data pointed to signs of weakness in the labor market and a loss of momentum in the economy at the end of the second quarter. This reaffirms market bets that the Federal Reserve (Fed) will start cutting rates in September and drags the Dollar Index (DXY), which tracks the greenback against a basket of currencies, to a more than three-week low, which, in turn, is seen as a key factor putting downward pressure on the USD/CHF pair.
Apart from this, the decline could also be attributed to some repositioning operations ahead of the much-awaited monthly US employment details, which are due out later during the American session. The popularly known Non-Farm Payrolls (NFP) report will play a key role in influencing market expectations on future policy decisions, which, in turn, should boost demand for the USD and determine the near-term trajectory of the USD/CHF pair.
Meanwhile, the Swiss Consumer Price Index (CPI), released on Thursday, fell to 1.3% year-on-year in June compared to the 1.4% year-on-year expected. Moreover, the core indicator fell to 1.1% year-on-year versus the 1.2% anticipated, which could allow the Swiss National Bank (SNB) to ease further. Moreover, the SNB had shown willingness to intervene in the foreign exchange market, which should cap the Swiss Franc (CHF) and offer support to the USD/CHF pair.
The Fed FAQs
Monetary policy in the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main tool for achieving these goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, increasing borrowing costs throughout the economy. This translates into a strengthening of the US Dollar (USD), as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which weighs on the greenback.
The Federal Reserve (Fed) holds eight meetings a year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC consists of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven regional Reserve bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a jammed financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the capital of maturing bonds in its portfolio to buy new bonds. It is usually positive for the value of the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
