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The USD/CHF Pair Trades With Modest Gains Around 0.8700, Just Below Friday's Two-Week High
Monday's USD/CHF exchange rate is supported by a combination of factors. The risk-on sentiment weakens the safe-haven CHF and functions as a tailwind for the major. The USD maintains its position just below the multi-week high and provides support for the pair.
The USD/CHF pair receives some purchasing near the 0.8675-0.8670 area on the first trading day of the week and moves closer to Friday's two-week high. Spot prices are currently trading near the 0.8700 round number and seek to build on last week's decent rebound from the mid-0.8500s, or a new low since January 2015.
The prevalent risk-on environment, exemplified by a generally upbeat equity market sentiment, is viewed as undermining the safe-haven Swiss Franc (CHF) and providing support for the USD/CHF pair. The US Dollar (USD), on the other hand, is unchanged just below a nearly three-week high and remains well supported by elevated US Treasury bond yields and expectations of additional policy tightening by the Federal Reserve (Fed).
It is important to recall that Fed Chair Jerome Powell stated last week that the economy and labour market must continue to weaken before inflation can credibly return to the 2% target. Moreover, the US GDP report indicated an exceptionally resilient economy and left the door wide open for another 25 basis point rate increase in September or November. In a greater degree, this obscures evidence of waning underlying price pressures in the United States.
In fact, the US Bureau of Economic Analysis reported that the PCE Price Index increased 0.2% last month and 3.0% over the preceding twelve months through June, representing the smallest gains since March 2021. Excluding the volatile food and energy components, the Core PCE Price Index registered a YoY growth rate of 4.1%, the smallest increase since September 2021. This could force the Fed to halt its rate-hiking cycle, which has been the fastest since the 1980s, and cap the USD.
The aforementioned fundamental environment appears to favour USD supporters and supports the likelihood of a significant near-term appreciation in the USD/CHF pair. Ahead of this week's key US macro releases scheduled at the beginning of a new month, including the closely-watched NFP report on Friday, traders may choose to refrain from placing aggressive bets and instead wait on the sidelines.
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