USD/CHF Holds Steady at 0.9100 Amid Positive Market Sentiment

USD/CHF Holds Steady at 0.9100 Amid Positive Market Sentiment

May 20, 2024

US Dollar Recovers Amid Improved Treasury Yields

The USD/CHF pair has been appreciating, currently trading around 0.9100, buoyed by the recovery of the US Dollar and improved US Treasury yields. This marks the third consecutive day of gains for the pair, reflecting a positive sentiment in the market. Early European trading hours on Monday saw the pair hovering near this level, although trading volumes were lighter due to the Whit Monday bank holiday in Switzerland.

Speculation of Potential Fed Rate Cuts

Recent softer US inflation and employment data have sparked speculation about potential rate cuts by the Federal Reserve (Fed) in 2024. According to the CME FedWatch Tool, the probability of a 25 basis-point rate cut by the Fed in September has slightly increased to 49.0%, up from 48.6% a week ago. This potential easing of monetary policy could pose a risk to the US Dollar, potentially limiting the advance of the USD/CHF pair.

Fed Officials Maintain Cautious Stance

Despite the speculation, Fed officials have maintained a cautious stance on interest rates. They emphasize that a single decline in inflation is not enough to ensure that price pressures will sustainably return to the target rate of 2%. Investors are eagerly awaiting the minutes from the Federal Open Market Committee (FOMC) meeting, which are due on Wednesday. These minutes are expected to reveal that policymakers are inclined to keep higher interest rates for a longer period.

Swiss Yield and SNB Policies

On the Swiss front, the yield on the 10-year Swiss government bond has edged higher to around 0.7%. This rise in yield typically suggests that the Swiss National Bank (SNB) is likely to maintain its current interest rates, which could strengthen the Swiss Franc (CHF). In March, the SNB made an unexpected move by cutting interest rates for the first time in nine years, reducing the key rate by 25 basis points to 1.50%. This positioned the SNB as the first major central bank to ease its monetary policy during that period.

Upcoming Economic Indicators and SNB Statements

Traders will be closely monitoring upcoming Swiss economic indicators for further insights. Later in the week, the Swiss Statistics office will release the Employment Level data, which could provide additional cues on the Swiss economy's health. Moreover, SNB Chairman Thomas Jordan is scheduled to deliver a speech at the Swiss Media Forum in Lucerne, where he will discuss communication, monetary policy, and its public impact. His remarks will be closely watched for any hints on future SNB policies.

In conclusion, while the USD/CHF pair benefits from the current positive sentiment surrounding the US Dollar, ongoing economic data and central bank communications will continue to play a crucial role in shaping the pair's outlook. Investors should stay vigilant, considering the potential for rate cuts by the Fed and the strategic decisions of the SNB.

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