The USD/CHF pair is showing strength near 0.8970 in Monday’s early European session. This rise can be attributed to the diminishing rate-cut prospects by the Federal Reserve (Fed), which has boosted the appeal of the US Dollar. The recent US Nonfarm Payrolls report for May revealed robust labor demand and stronger than expected wage growth. As a result, the Fed is expected to maintain a hawkish narrative on interest rate guidance due to the favorable labor market conditions.
The sharp decline in Fed rate-cut bets has caused market sentiment to shift towards risk-aversion. This is evident in the losses posted by S&P 500 futures in the early London session. Furthermore, the US Dollar Index (DXY) has surged to an almost four-week high near 105.27, leading to a rise in 10-year US Treasury yields to 4.45%.
Investors are now turning their attention to the upcoming US Consumer Price Index (CPI) data for May and the Fed’s interest rate policy announcement scheduled for Wednesday. Analysts are anticipating a deceleration in annual core inflation to 3.5%, with headline figures expected to grow steadily by 3.4%. The Fed is likely to maintain its current interest rate levels for the seventh consecutive time, with a hawkish guidance on future rate hikes due to the slower progress in disinflation.
On the Swiss front, market expectations for the Swiss National Bank’s (SNB) rate-cut path will play a crucial role in determining the next move for the Swiss Franc. Despite inflation remaining below the 2% threshold, the SNB is less likely to announce a rate-cut at its upcoming meeting on June 20. SNB Chairman Thomas J. Jordan has highlighted small upside risks to inflation expectations, which have been driven by the weak Swiss Franc making Swiss exports more competitive in the global market.
The USD/CHF pair is currently firm near 0.8970 as waning Fed rate-cut prospects strengthen the US Dollar. Market sentiment has shifted to risk-aversion, and investors are focusing on the upcoming CPI data and Fed interest rate policy. The impact on the Swiss Franc will be closely monitored, with expectations leaning towards the SNB holding off on further rate cuts.