- USD/CHF appreciates as the Fed may delay rate cuts to bring inflation under control.
- CME FedWatch Tool indicates a decrease to 67.7% odds of a Fed rate cut in September, down from 68.5% the previous day.
- The Swiss Franc may limit its downside as political and geopolitical uncertainty has driven safe-haven flows.
USD/CHF continues to gain ground for the second consecutive day, trading around 0.8960 during the early European session on Wednesday. This upside could be attributed to the higher US Dollar (USD) due to heightened expectations of delaying interest rate cuts by the Federal Reserve (Fed). According to the CME FedWatch Tool, investors are pricing in 67.7% odds of a Fed rate cut in September, compared to 68.5% a day earlier.
Reuters cited Fed Governor Michelle Bowman repeating her view on Tuesday that holding the policy rate steady for some time will likely be enough to bring inflation under control. Meanwhile, Fed Governor Lisa Cook said it would be appropriate to cut interest rates "at some point" given significant progress on inflation and a gradual cooling of the labor market, though she remained vague about the timing of the easing.
The Greenback also receives support due to the potential risk aversion, which could be attributed to the investors’ caution ahead of the key US economic data releases later this week. The revised US Gross Domestic Product (GDP) for the first quarter (Q1) is scheduled to be released on Thursday, followed by the Personal Consumption Expenditure (PCE) Price Index on Friday.
On the Swiss side, the Swiss Franc (CHF) may find support as political uncertainty in France and the rise of far-right parties in European Parliament elections have driven safe-haven flows. The yield on the 10-year Swiss government bond has declined to 0.56%, the lowest level since August 2022.
Moreover, ongoing geopolitical tensions in the Middle East and Ukraine could further fuel the flight to safety, benefiting the safe-haven CHF. Israeli Prime Minister Benjamin Netanyahu has stated that the most intense phase of the attack against Hamas in Gaza is nearing its end, according to CNN. Meanwhile, Russia has condemned the US for a "barbaric" strike in Crimea, which utilized US-provided missiles, resulting in the deaths of at least four people, including children, and injuring 151 others.
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