The USD/CHF pair continues its decline for the fourth consecutive trading day on Monday, staying below the psychological level of 0.9000. This trend is influenced by growing speculation that the Federal Reserve will start policy normalization from the September meeting.

The US Dollar Index (DXY), which tracks the Greenback against six major currencies, found temporary support near a three-week low around 104.85. Meanwhile, 10-year US Treasury yields edged higher to 4.3%, trading close to their weekly low. The prospect of the Fed reducing interest rates earlier than anticipated is unfavorable for both the US Dollar and bond yields. According to the latest dot plot, Fed officials have signaled only one rate cut this year, forecasting it to occur in the last quarter.

The possibility of a Fed rate cut in September has increased due to signs of moderating strength in the US labor market, as indicated by the June Nonfarm Payrolls (NFP) report. The report revealed that the Unemployment Rate rose to 4.1%, while annual Average Hourly Earnings, a measure of wage inflation, decelerated as expected to 3.9%. Although payroll data exceeded estimates, it remained below May’s reading.

This week, investors will be closely watching the US inflation data for June, set to be published on Thursday. This data will be crucial in shaping expectations regarding the Fed’s monetary policy decisions.

On the Swiss Franc front, easing inflationary pressures could prompt the Swiss National Bank (SNB) to continue reducing interest rates further. The annual Swiss Consumer Price Index (CPI) decelerated to 1.3% in June, while economists had expected price pressures to grow steadily by 1.4%.

Trade Idea

Persistent Fed rate cut speculations and a weaker US dollar outlook, combined with potential SNB rate cuts due to easing inflationary pressures in Switzerland, support further downside in the USD/CHF pair.