USD/CHF rises towards 0.8900 after rebounding from four-month lows

  • USD/CHF has rebounded from its four-month low of 0.8820, hit on Thursday.
  • The US dollar continues to gain ground due to rising risk aversion.
  • The Swiss franc could struggle on expectations that the SNB will cut interest rates further.

The USD/CHF pair is gaining ground for the second consecutive day, trading around 0.8880 during the European session on Friday. The USD/CHF pair has bounced from a four-month low of 0.8820 recorded on Thursday. This rally in the pair can be attributed to the strengthening of the US Dollar amid rising risk aversion.

Moreover, the US Dollar is bolstered as US Treasury yields continue to improve. The Dollar Index (DXY), which measures the value of the US Dollar against the other six major currencies, is trading around 104.30 with 2-year and 10-year US Treasury bond yields standing at 4.46% and 4.19%, respectively, at the time of writing.

However, the USD upside could potentially be limited by weak jobs data, which increases market expectations for a Federal Reserve (Fed) rate cut in September. According to the CME Group’s FedWatch tool, markets now indicate a 93.5% probability of a 25 basis point rate cut at the Fed’s September meeting, up from 85.1% a week ago.

Initial claims for U.S. jobless benefits rose more than expected, data showed Thursday, adding 243K new claimants for the week ending July 12, compared with the 230K expected, and exceeding the previous week’s revised 223K.

On the Swiss front, the expectation that the Swiss National Bank (SNB) may cut interest rates further could weigh on the Swiss Franc (CHF). In June, the SNB cut its key interest rate by 25 basis points for the second consecutive meeting. This decision was driven by subdued inflationary pressures and the resilience of the CHF.

Kyle Chapman, a currency market analyst at the Ballinger Group, said, “I expect the SNB to follow up with a third cut next quarter, and there is potential for a fourth in December if there is still high conviction in the level of monetary policy tightening.”

Source: Fx Street

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