USD/CHF Pair Trades with Negative Bias Amid Dovish Fed Comments

During the early European session on Monday, the USD/CHF pair is experiencing a mild negative bias, hovering around 0.9015. This downward pressure on the pair can be attributed to dovish remarks made by Federal Reserve (Fed) Chairman Jerome Powell on Friday, which have weighed on the US Dollar (USD) and limited the upside potential of the USD/CHF pair. Attention now turns to the release of the US March ISM Manufacturing Purchasing Managers Index (PMI) later in the day, although market activity is expected to remain subdued due to the Easter Monday bank holiday in Switzerland.

Recent inflation data for February, which aligned with market expectations, suggests that the Fed may maintain its current stance before considering any interest rate cuts this year. Market pricing, as indicated by the CME Group’s FedWatch Tool, is consistent with Fed projections for three rate cuts. The latest report from the US Bureau of Economic Analysis revealed that the Personal Consumption Expenditures Price Index (PCE) rose by 2.5% year-on-year in February, meeting market consensus. However, the monthly PCE figure for the same month increased by 0.4% month-on-month, falling slightly short of expectations. The Core PCE, the Fed’s preferred inflation measure, also rose by 2.8% year-on-year and 0.3% month-on-month in February, in line with market estimates.

Turning to Switzerland, the Swiss National Bank (SNB) opted to cut the benchmark interest rate by 25 basis points (bps) to 1.5% on March 21. The decision was attributed to the effective battle against inflation over the past two and a half years. Analysts at ING anticipate two additional rate cuts from the SNB this year, barring any unexpected developments in the international economic landscape that could lead to rapid inflationary pressures.

Looking ahead, investors will closely monitor the release of the Swiss Consumer Price Index on Thursday, which is anticipated to show a 1.4% increase in March. A softer-than-expected reading in the Swiss CPI inflation data could potentially exert selling pressure on the Swiss Franc (CHF). Furthermore, market participants will focus on US employment data scheduled for release on Friday, including the Nonfarm Payrolls (NFP), Unemployment Rate, and Average Hourly Earnings for March.

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