The USD/CHF pair has sustained losses for a second consecutive session, dipping towards 0.8640 in Asian trading on Monday. The Swiss Franc (CHF) is experiencing increased demand against the US Dollar (USD), driven by a surge in risk aversion sentiment. This heightened demand for the CHF is attributed to escalating tensions in the Middle East, where geopolitical uncertainties typically prompt investors to seek refuge in safe-haven currencies like the Swiss Franc.
Despite concerns about the persistent strength of the Swiss Franc, uncertainty prevails regarding the stance of the Swiss National Bank (SNB). It is not anticipated that the SNB will intervene in the foreign exchange market by purchasing foreign currency to curb the appreciation of the CHF.
Meanwhile, the US Dollar Index (DXY) remains stable around 103.50, with 2-year and 10-year US Treasury yields subdued at 4.34% and 4.13%, respectively, at the time of writing. Despite the release of moderate US Core Personal Consumption Expenditures Price Index (PCE) data on Friday, the US Dollar failed to find support. The December Core PCE reported a 0.2% monthly increase, meeting expectations and surpassing the previous reading of 0.1%. However, the yearly Core PCE rose by 2.9%, falling short of the expected 3.0% and the previous reading of 3.2%.
As signs of inflation cooling off emerge, investors are contemplating the potential implementation of policy easing by the Federal Reserve (Fed). The CME FedWatch Tool indicates that futures traders have priced in a 53% probability of the Fed cutting interest rates for the first time in this cycle during the March meeting. However, the upcoming Federal Open Market Committee (FOMC) statement on January 31 is anticipated to maintain the Fed Funds rate unchanged.
Traders are poised to closely monitor key economic indicators, including Tuesday’s releases of the US Housing Price Index and Consumer Confidence figures, to gain further insights into the market. On the Swiss economic front, Wednesday’s Real Retail Sales and the ZEW Survey will be closely watched for assessing the overall health of the Swiss economy.