USD/CHF consolidates around 0.8660 as Fed policy comes under spotlight

USD/CHF is demonstrating back-and-forth moves around 0.8660 in the European session. The Swiss Franc asset is trading inside the woods after a sharp rally to near 0.8680 as investors have shifted their focus towards the interest rate decision by the Federal Reserve (Fed), which will be announced on July 27.

S&P500 futures have shown a recovery move in London after a sheer sell-off on Thursday, indicating some ease in the risk-averse theme. The US Dollar Index (DXY) has jumped to near the 101.00 resistance and needs comfortable stability above the same. The yields offered on 10-year US Treasury bonds have dropped to near 3.83%.

As per the CME FedWatch tool, a 25 basis point (bp) interest rate hike to 5.25-5.50% looks real. Scrutiny of June’s economic growth indicates that inflationary pressures have cooled down significantly as producers have lowered prices of goods and services at factory gates. In addition to that, labor market conditions also eased and consumer spending momentum has slowed down too.

In spite of easing price pressures, one more interest rate hike from the Fed is highly required as core inflation is still persistent and will take a while in returning to 2%. Also, labor market conditions are still hot as initial jobless claims dropped last week.

The US Department of Labor reported that individuals who applied for jobless benefits for the first time dropped to 228K for the week ending July 16 vs. expectations of 242K and the former release of 237K.

On the Swiss Franc front, more interest rate hikes from the Swiss National Bank (SNB) are anticipated as SNB Chairman Thomas J. Jordan conveyed that the consequences of higher inflation are worse than the lower inflation scenario. Inflation in the Swiss economy landed at 1.7% in June but needs stabilization.