USD/CHF holds gains near 0.8970 with focus on US Inflation and Fed policy

• USD/CHF remains firm near 0.8970 as waning Fed rate-cut prospects boost the US Dollar’s appeal.
• The Fed is expected to maintain a hawkish narrative on the interest rate guidance due to slower progress in disinflation.
• The SNB will be less likely to continue the rate-cut spell on June 20.

The USD/CHF pair clings to gains near 0.8970 in Monday’s early European session. The Swiss Franc asset remains firm as the US Dollar (USD) strengthens after traders unwind Federal Reserve (Fed) rate-cut bets for the September meeting.

Dovish prospects for the Fed’s September policy meeting diminished significantly after the US Nonfarm Payrolls (NFP) report for May showed that the labor demand remained robust and wage growth was stronger than expected. The maintenance of interest rates at their current levels by the Fed is favorable when labor market conditions appear to be strong.

Meanwhile, a sharp decline in Fed rate-cut bets has turned market sentiment risk-averse. S&P 500 futures have posted some losses in the early London session. The US Dollar Index (DXY) jumps to an almost four-week high near 105.27. 10-year US Treasury yields extend their upside to 4.45%.

Going forward, investors will focus on the US Consumer Price Index (CPI) data for May and the Fed’s interest rate policy, which are scheduled for Wednesday. Annual core inflation that strips off volatile food and energy prices is estimated to have decelerated to 3.5% from the prior release of 3.6%, with headline figures growing steadily by 3.4%.

The Fed is expected to remain status quo for the seventh time in a row. Investors will keenly focus on Fed’s guidance on the interest rates, which is likley to be hawkish as progress in the disinflation process appears to be slowed.

On the Swiss front, market expectations for the Swiss National Bank’s (SNB) rate-cut path will drive the next move in the Swiss Franc. The SNB is less-likely to deliver a subsequent interest rate-cut on June 20 though inflatuon remains beow the 2% threshold. Earlier, SNB Chairman Thomas J. Jordan cautioned about small upside risks to inflation expectations, which have been prompted by weak Swiss Franc that has made Swiss exports competitive in the global market.