The USD/CHF pair extends its gains for the second consecutive session, trading around 0.8550 during Thursday’s European session. The US Dollar (USD) benefits from rising Treasury yields and continues its strong performance, with the US Dollar Index (DXY) climbing for the fifth straight day to approximately 101.80. The 2-year and 10-year US Treasury yields have reached 3.67% and 3.65%, respectively.

The upward movement in USD/CHF is supported by market expectations of a smaller interest rate cut by the Federal Reserve (Fed) in September. August’s Consumer Price Index (CPI) data revealed a decline in headline inflation to a three-year low of 2.5% year-on-year, down from 2.9% previously and below the anticipated 2.6%. The core CPI, excluding food and energy, remained steady at 3.2% year-on-year and increased to 0.3% month-on-month. This data reinforces the expectation that the Fed will initiate its easing cycle with a 25-basis point cut in September.

Conversely, Swiss inflation fell to 1.1% in August, contributing to the drop in the 10-year Swiss government bond yield, which has now reached new three-week lows. This decline in Swiss yields, coupled with a surge in the Swiss Franc (CHF) to its highest level of 2024, is heightening speculation about a potential substantial rate cut by the Swiss National Bank (SNB). The market anticipates a 25-basis point reduction in September, with a total of 55 basis points of easing expected by year-end.

Trade Idea:

Monitor for a potential USD/CHF move towards 0.8600. Consider buying if the pair breaks above this level, targeting further gains with a stop-loss below 0.8500.