USD/CHF remains on the defensive below 0.8850 ahead of SNB rate decision

The USD/CHF pair trades weaker around 0.8840 on Thursday during the early European trading hours. Traders prefer to wait on the sidelines ahead of the Swiss National Bank (SNB) monetary policy meeting on Thursday.

The markets expect the central bank to cut its key policy rate by 25 basis points (bps) from 1.50% to 1.25% at its June meeting. "We expect the policy rate to be cut by 25bp to 1.25% at this upcoming meeting ... it is our base case because inflation is within the target range, it is expected to remain there and the SNB thinks the policy is currently restrictive," said George Moran, European economist at Nomura. In case the SNB refrains from rate cuts, this might provide some support to the Swiss Franc (CHF). On the other hand, a rate cut by the central bank might weigh on the CHF against the USD.

On the USD’s front, Federal Reserve (Fed) officials maintain a cautious stance and look for additional inflation data before considering the interest rate cut. Traders expect one or two rate cuts by the end of this year. Odds of a September Fed funds rate cut by 25 basis points (bps) increased to 67% after the weaker Retail Sales data, up from 61% a day ago, according to the CME FedWatch tool. Investors will take more cues from the preliminary US S&P Global PMI reports for June for fresh impetus. The stronger-than-expected data could lift the Greenback and cap the downside for the pair.