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Market Analysis

USD/CHF Drops Toward 0.8850 as Fed Rate Cut Expectations Build
Amos Simanungkalit · 8.8K Views

4FEB5CEB-1E30-439b-85A3-B647710BD511

USD/CHF has reversed its previous gains, trading around 0.8880 during European hours on Monday. The US Dollar (USD) is under pressure due to a dovish outlook on Federal Reserve policy, contributing to the weakening of the USD/CHF pair. According to CME Group’s FedWatch Tool, the probability of a 25-basis point rate cut at the September Fed meeting has increased to 91.7%, up from 90.3% a week ago.

Federal Reserve Bank of New York President John Williams mentioned on Friday that the long-term trends driving declines in neutral interest rates before the pandemic remain unchanged. Williams added, "My Holston-Laubach-Williams estimates for r-star in the United States, Canada, and the Euro area are about the same level as they were before the pandemic," as reported by Bloomberg.

In a significant political development, US President Joe Biden withdrew his re-election bid on Sunday, facing mounting pressure from Democrats. He endorsed Vice President Kamala Harris as the party's candidate for the upcoming November election against Republican Donald Trump, according to Reuters.

Traders are awaiting the release of Global Purchasing Managers Index (PMI) and Gross Domestic Product (GDP) data later this week to gain fresh insights into the US economic conditions.

On the Swiss Franc (CHF) front, expectations that the Swiss National Bank (SNB) may cut interest rates further could put additional pressure on the CHF. Kyle Chapman, FX markets analyst at Ballinger Group, commented, "I anticipate the SNB will implement a third rate cut next quarter, with a potential fourth cut in December if there remains strong conviction in the restrictive monetary policy stance."

 

 

Paraphrasing text from "FX Street" all rights reserved by the original author.

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