USD/CHF declines towards 0.8900 on hopes of a neutral guidance from Fed

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  • USD/CHF is expected to extend the downside to near 0.8900 amid weak appeal for the USD Index as safe-haven.
  • A consecutive 25 bps interest rate hike is expected to be followed by neutral guidance from the Fed.
  • US yields are under immense pressure after Treasury estimated that it would be out of funds for payments by early June.

The USD/CHF pair is struggling to defend the immediate support of 0.8920 in the early Asian session. The Swiss franc asset has faced immense selling pressure after a perpendicular dive in the US Dollar Index (DXY). The major is expected to decline further towards the round-level support of 0.8900 as debt-ceiling concerns have faded the appeal of the USD Index as safe-haven.

S&P500 futures are subdued in Asia after a bearish Tuesday. Investors dumped United States equities amid uncertainty over the interest rate policy of the Federal Reserve (Fed). Also, the market mood is quite risk averse as a raise in the debt ceiling will impact the long-term outlook of the US economy.

The US Treasury yields are under immense pressure after US Treasury Secretary Janet Yellen estimated that Treasury would be out of funds for payments by early June. Concerns over the debt ceiling stemmed after US President Joe Biden showed reluctance in meeting with US Senate McCarthy as House Republicans demanded big cuts in the President’s spending initiatives against the raising of the debt ceiling. At the time of writing, the 10-year US Treasury yields have dropped to near 3.43%.

As per the CME Fedwatch tool, Fed chair Jerome Powell is expected to raise interest rates by 25 basis points (bps) to 5.00-5.25%. A consecutive 25 bps interest rate hike is expected to be followed by neutral guidance as US Manufacturing PMI is consistently showing contraction, the growth rate has slowed down, and labor market conditions are losing resilience.

On the Swiss franc front, Friday’s inflation data (April) will be keenly watched. The monthly Consumer Price Index (CPI) is expected to accelerate by 0.5% at a higher pace than the prior recording of 0.2%. While annual CPI is expected to soften to 2.8% vs. the prior release of 2.9%.

FX

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