USD/CHF Remains On The Defensive Below 0.8850 As Weak U.S. Retail Sales Boost Fed Rate Cut Bets

USD/CHF rose modestly near a three-month low of 0.8840 in early European trading on Wednesday. The pair’s small rebound may be limited as traders increase bets on the U.S. Federal Reserve (Fed) to cut interest rates this year. U.S. markets will be closed on Wednesday for June 1, the National Independence Day. Investors await the Swiss National Bank (SNB) rate decision on Thursday, which is not expected to change.

The SNB is expected to keep interest rates at 1.5% as the country’s inflation rate remained high for the second consecutive month in May. Ahead of the policy meeting, investors have lowered the chances of a SNB rate cut to nearly 60% from 97% in April, according to Bloomberg. “We expect the policy rate to be cut by 25 basis points to 1.25% at this upcoming meeting,” said George Moran, European economist at Nomura. “This is our base case as inflation is within the target range and is expected to remain within it, and the SNB sees current policy as restrictive.”

On the other hand, a weaker-than-expected U.S. retail sales report on Tuesday fueled speculation that the Federal Reserve will start cutting interest rates within a few months, dragging the dollar lower against rival currencies. The U.S. Commerce Department reported on Tuesday that U.S. retail sales rose 0.1% month-on-month in May, compared with a 0.2% decline in April, below expectations for a 0.2% increase.

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