USD/CHF Holds Below 0.8950 As Geopolitical Risks In The Middle East Intensify

USD/CHF traded lower at around 0.8925 in early Asian trading on Tuesday. The pair’s decline was supported by a weaker U.S. dollar (USD). Investors will be keeping a close eye on the Swiss National Bank’s second-quarter report, due on Wednesday. In the U.S., Thursday’s final reading of U.S. first-quarter gross domestic product (GDP) and Friday’s release of May’s personal consumption expenditures (PCE) price index will be in focus this week.

Federal Reserve policymakers remain cautious about cutting interest rates, stressing that their decision will be data-dependent. On Monday, San Francisco Fed President Mary Daly said the Fed must continue to work to restore price stability while avoiding painful disruptions to the economy. Daly noted that while the central bank still has “more work to do” to curb inflation, it is not the only risk they face.

According to the CME FedWatch Tool, traders are now pricing in a nearly 66% chance of a Fed rate cut in September, up from 59.5% at the end of last week. Speeches by Federal Reserve officials Lisa Cook and Michelle Bowman later on Tuesday could provide some hints on the trajectory of interest rates this year. Hawkish comments from Fed policymakers could boost USD/CHF and limit its downside.

On the other hand, ongoing geopolitical tensions in the Middle East and Ukraine could drive safe-haven flows, favoring the Swiss franc. Israeli Prime Minister Benjamin Netanyahu said the most intense phase of the offensive against Hamas in Gaza is coming to an end, while stressing that the broader war against Hamas continues, according to CNN. In addition, Russia condemned the United States for a “brutal” attack in Crimea that used U.S.-supplied missiles and killed at least four people, including children, and injured 151 others.

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