USD/CHF holds position around 0.8500 ahead of NBS interest rate decision

• USD/CHF could gain ground as the SNB is expected to offer a 25 basis point rate cut on Thursday.
• Market participants estimate a 63% chance of a quarter percentage point cut by the SNB.
• The CME FedWatch tool suggests about a 50% chance of a 75 basis point rate cut by the Fed in 2024.

USD/CHF is hovering around 0.8500 during the Asian session on Thursday, maintaining its position following Wednesday’s recent gains. The Swiss Franc (CHF) could come under downward pressure ahead of the Swiss National Bank’s (SNB) interest rate decision scheduled for later in the day.

The Swiss National Bank is widely expected to cut interest rates by 25 basis points at its next meeting in September. Interest rate probabilities suggest that market participants estimate a 63% chance of a quarter-percentage point cut by the SNB, while a higher one has a 37% chance.

On Wednesday, Swiss ZEW expectations fell 5.4 points from the previous month to -8.8 in September, down from a previous reading of -3.4. UBS, which works with CFA Society Switzerland to publish the indicator, noted that the negative reading indicated growing pessimism among participants about growth prospects for the Swiss economy over the next six months.

The USD/CHF possibility could be limited due to the US dollar (USD). The greenback is receiving downward pressure due to increasing chances of further interest rate cuts by the US Federal Reserve (Fed) in upcoming policy meetings. According to CME’s FedWatch tool, markets are pricing in about a 50% chance of a total of 75 basis points to be deducted by the Fed in a range of 4.0-4.25% by the end of this year.

Federal Reserve Governor Adriana Kugler said Wednesday that she “strongly supported” the Fed’s decision to cut interest rates by half a point last week. Kugler also said further rate cuts would be appropriate if inflation continues to fall as expected, according to Bloomberg.

Traders will likely watch for the release of annualized US gross domestic product (GDP) for the second quarter (Q2), scheduled for release later in the North American session.