USD/CHF improves to 0.8980, recovers from recent losses

• USD/CHF recovers from the recent losses amid investors' caution ahead of the interest rate decisions from both countries.
• SNB is anticipated to implement a 25 basis points rate hike.
• Swiss central bank is expected to maintain a restrictive stance to its highest levels since April 2002.
• Investors' caution is likely to be driven by the odds of a Fed attempting an interest rate hike by the end of 2023.

USD/CHF recovers from the previous day’s losses amid investors caution ahead of the interest rate decisions from the US Federal Reserve (Fed) and Swiss National Bank (SNB). The spot price trades around 0.8980 during the early trading hours in the European session on Tuesday.

Switzerland’s Trade Balance data for August showed a surplus of 4,054M, improved from the previous figure of revised 3,132M.

Additionally, the Swiss National Bank (SNB) is expected to raise interest rates by 25 basis points (bps) from 1.75% to 2% on Thursday. The Swiss central bank is expected to maintain a restrictive stance to its highest levels since April 2002 to ensure price stability, especially as the nation's inflation remains below the 2% target with a 1.6% year-over-year increase.

Furthermore, US Secretary of State Antony Blinken met with Chinese Vice President Han Zheng on the sidelines of the United Nations General Assembly on Monday. The US State Department described the discussion as "candid and constructive."

Traders will closely monitor developments in the US-China relationship. However, renewed trade tensions between the US and China could potentially benefit the traditional safe-haven Swiss Franc (CHF) and create headwinds for USD/CHF.

On the other side, the US Federal Reserve (Fed) is widely expected to maintain its current interest rates in the September policy meeting, which is putting pressure on the Greenback.

However, there's a sense of caution among investors, which is likely to be driven by the possibility of a 25 basis points interest rate hike by the end of 2023. This caution could lend support to the US Dollar USD).

Traders are considering the possibility that the Fed may keep interest rates elevated for an extended period due to the robust economic data and persistent inflation. Market participants will closely analyze the central bank's statements for any hints or insights into the potential future path of interest rates.

US Dollar Index (DXY) is attempting to break its two-day losing streak, trading higher around 105.20 below the six-month high reached last week. Meanwhile, US Treasury yields are rebounding from the losses seen in the previous session, with the yield on the US 10-year bond at 4.32% at the time of writing. Improved yields may provide support for the Greenback.

Investors will likely keep an eye on upcoming macroeconomic data from the US, including Building Permits and Housing Starts for August, which are scheduled for release later in the North American session. These datasets could potentially impact US economic activity and influence market sentiment.