USD/CHF looks set for a bumpy ride below 0.8900 as SNB policy comes into picture

The USD/CHF pair is demonstrating topsy-turvy moves above the round-level cushion of 0.8900 in the European session. The Swiss Franc asset looks delicate above the aforementioned support as the appeal for the US Dollar Index (DXY) has weakened due to the cheerful market mood.

S&P500 futures are trading in positive territory after recovering losses generated in the Asian session. The risk-sensitive assets have hogged the limelight as investors are hoping that the Federal Reserve (Fed) might not stand by its promise of two more rate hikes due to the worsening economic outlook.

US labor market conditions are easing at a decent pace as initial jobless claims are landing higher than expectations consistently from the past four weeks. Factory activity is in a contraction phase for the past seven months and the service sector is showing a mild expansion. Apart from them, factory gate prices have softened dramatically as the demand for durables is facing the heat of high inflation.

This would sharply impact the USD Index and its broader outlook. Economists at TD Securities cited we continue to think that inflation matters more than growth, showing that policymakers won’t actually push back on growth if it accompanies further disinflation. That keeps us biased to fade USD rallies ahead of the July meeting unless we start to see a clear string of upside US data surprises.

On the Swiss Franc front, investors are shifting their focus toward the interest rate decision by the Swiss National Bank (SNB), which will be announced next week. SNB Chairman Thomas J. Jordan believes that this is no better waiting for inflation to increase first. So a hawkish stance is widely anticipated from the SNB.