USD/CHF Rebounds Above 0.8900 As Fed’s Hawkish Comments Boost Dollar

USD/CHF ended a three-day losing streak around 0.8910 in early European trading on Monday. The hawkish stance of the Federal Reserve (FED), which expects only one rate cut in 2024, and a stronger US dollar (USD) provided some support for the pair. The Swiss SECO economic forecast will be released later on Monday. On Thursday, the Swiss National Bank (SNB) rate decision will be closely watched.

Fed officials have forecast only a 25 basis point rate cut before the end of the year, down from a total of three 25 basis point cuts forecast earlier this year. Fed Chairman Jerome Powell said last week that inflation could be higher than initially forecast by the end of the year, raising expectations that the Fed may keep interest rates higher for longer to curb inflation. Powell added that the U.S. central bank is not yet confident of cutting rates and that he needs more convincing evidence that inflation is moving toward its target.

Minneapolis Fed President Neel Kashkari said on Sunday that it is “reasonable to expect” the Fed will wait for more data before cutting rates until December. Cleveland Fed President Loretta Mester noted on Friday that it may take longer than previously expected to achieve the Fed’s 2.0% inflation target.

On the data front, the University of Michigan’s initial consumer confidence index fell below expectations, from a final value of 69.1 in May to 65.6 in June, below the consensus of 72. The University of Michigan’s one-year consumer inflation expectations remained stable at 3.3%, while five-year inflation expectations rose from 3.0% to 3.1%. However, these reports had little impact on the dollar.

In Switzerland, the Swiss National Bank is expected to keep interest rates unchanged at 1.5% at its June meeting on Thursday as Swiss inflation hit a new high since December 2023. In addition, continued geopolitical tensions in the Middle East and political uncertainty in the eurozone (especially France) may drive safe-haven inflows, which will benefit the Swiss franc (CHF) against the US dollar. French President Emmanuel Macron called for early parliamentary elections after losing the European vote to the right-wing National Rally party. Macron said on Sunday that the economic proposals put forward by two extremist groups in the parliamentary elections were not realistic and that France was at a very serious moment and faced major economic problems.

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