The US Dollar (USD) edged lower against the Swiss Franc (CHF) in early Asian trading on Monday, with the USD/CHF pair slipping to around 0.8360. The move comes as markets react to a surprise downgrade of the US government’s credit rating, sparking renewed volatility in the US fixed income market.
Moody’s Investors Service downgraded the US credit rating by one notch—from the top-tier Aaa to Aa1—citing ballooning federal debt and a rising interest burden. The downgrade aligns with earlier moves by Fitch Ratings in 2023 and Standard & Poor’s in 2011, raising concerns over long-term fiscal sustainability in the world’s largest economy.
Despite the credit downgrade, the Greenback found some support from renewed optimism surrounding a 90-day trade truce between the US and China, alongside prospects for broader trade deals. US Treasury Secretary Scott Bessent stated in a CNN interview on Sunday that President Donald Trump remains committed to imposing steep tariffs on trade partners unwilling to engage in what he termed “good faith” negotiations.
Meanwhile, softening inflation indicators in the US have bolstered expectations of a more accommodative monetary stance from the Federal Reserve. Last week’s data showed slowing price growth in both the Consumer Price Index (CPI) and Producer Price Index (PPI), reinforcing the case for potential rate cuts in 2025. Additionally, a disappointing US Retail Sales report added to concerns about tepid consumer demand and a sluggish growth outlook.
However, downside pressure on the USD/CHF pair is likely to be cushioned by growing signs of monetary loosening from the Swiss National Bank (SNB). SNB Chairman Martin Schlegel recently hinted that the central bank is prepared to deploy all available policy tools, including a potential return to negative interest rates, although he emphasized a reluctance to do so. Markets are increasingly pricing in a 25 basis-point rate cut to 0% at the SNB’s next meeting scheduled for June 19.
As the USD faces macroeconomic headwinds from domestic fiscal concerns and soft data, and the CHF contends with dovish central bank rhetoric, the USD/CHF pair remains caught in a tug-of-war between weakening fundamentals and diverging monetary policy outlooks. Traders are now closely watching upcoming economic data releases and central bank commentary for further directional cues.
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