- USD/CHF remains bullish due to disparities in expected policy trajectories between the Fed and SNB.
- The Swiss Franc is under downward pressure as the SNB is anticipated to implement another rate cut in June.
- The US Dollar has rebounded, potentially driven by the higher 10-year yield on US Treasury bond.
USD/CHF hovers near 0.9140 during early European trading hours on Wednesday, maintaining its position close to the six-month high of 0.9152 reached on April 15. The Swiss Franc (CHF) faces challenges due to the notable disparities in expected monetary policy trajectories between the US Federal Reserve (Fed) and the Swiss National Bank (SNB).
Swiss annual inflation dropped to a more than two-year low of 1% in March, emphasizing the SNB’s assertion that underlying inflation has moderated. This, coupled with pessimistic Business Confidence indicators and a decline in Retail Sales, has strengthened market expectations that the SNB may implement another rate cut in June.
The CHF had already experienced significant depreciation after the Swiss National Bank unexpectedly reduced its main interest rate by 25 basis points to 1.50% in March, becoming the first major central bank to reverse course on tighter monetary policy.
In the United States (US), the probability of the Federal Reserve’s maintaining interest rates unchanged in the June meeting has risen to 84.6%, up from the previous week’s 82.7%, according to the CME FedWatch Tool.
The US Dollar Index (DXY), which measures the US Dollar (USD) against six major currencies, has rebounded due to a higher 10-year yield on US Treasury bonds, standing at 4.62%, up by 0.54% at the time of writing. However, disappointing US Purchasing Managers Index (PMI) data is weighing on the Greenback, thereby limiting the advance of the USD/CHF pair.
In April, the preliminary S&P Global Composite PMI for the US declined to 50.9 from the previous reading of 52.1. Additionally, the Manufacturing PMI fell to 49.9 from 51.9 in the previous reading, below the estimated 52.0. Similarly, the Services PMI decreased to 50.9, compared to the prior 51.7, falling short of the expected 52.0.