USD/CHF Strengthens Above 0.8950 as Fed Chairman Powell’s Testimony Becomes Focus

USD/CHF strengthened for the second day in early European trading on Tuesday, trading around 0.8980. Meanwhile, the US dollar index consolidated around the 105.00 level ahead of Federal Reserve (FED) Chairman Jerome Powell’s semi-annual monetary policy testimony on Tuesday.

The dollar was dragged lower by growing expectations that the US Federal Reserve (FED) will start cutting interest rates earlier than expected. Fed Powell’s testimony may provide some hints on whether the prospects of a September rate cut have improved with the release of the latest data. If Powell makes hawkish remarks, it may provide some support for the US dollar (USD). The CME FedWatch tool shows that financial markets are currently pricing in a probability of a September rate cut by the Federal Reserve of nearly 76%, up from 71% last Friday.

The focus turns to the US Consumer Price Index released on Thursday. The US Consumer Price Index is estimated to increase by 3.1% year-on-year in June, compared with a 3.3% increase in May. Core inflation is expected to remain stable in June, increasing at an annual rate of 3.4%.

In Switzerland, the uncertain political outlook in Europe and globally could boost safe-haven currencies such as the Swiss franc (CHF). However, falling inflationary pressures in Switzerland could prompt the Swiss National Bank (SNB) to continue cutting interest rates further. This could therefore weigh on the CHF and be bullish for USD/CHF in the short term.

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