USD/CHF edges lower to near 0.8640, focus on US Consumer Confidence

• USD/CHF loses ground on risk aversion sentiment.
• US Dollar remains stable despite downbeat US bond yields.
• Market expects that the Fed will initiate a rate-cut cycle in March.

The USD/CHF continues to lose ground for the second straight session, edging lower to near 0.8640 during the Asian hours on Monday. The Swiss Franc (CHF) appears to be in demand against the US Dollar (USD), driven by an increase in risk aversion sentiment. This demand for the CHF could be attributed to heightened tensions in the Middle East, as geopolitical uncertainties often lead investors to seek safe-haven currencies like the Swiss Franc.

There is uncertainty regarding the Swiss National Bank's (SNB) stance on the persistent strength of the Swiss Franc. Despite concerns about the CHF's strength, it is not expected that the SNB will intervene in the foreign exchange market by purchasing foreign currency to restrain the appreciation of the CHF.

The US Dollar Index (DXY) maintains stability around 103.50, with subdued 2-year and 10-year US Treasury yields at 4.34% and 4.13%, respectively, at the time of writing. Despite the release of moderate US Core Personal Consumption Expenditures Price Index (PCE) data on Friday, the US Dollar failed to find support. The December Core PCE reported a 0.2% monthly increase, meeting expectations and surpassing the previous reading of 0.1%. However, the yearly Core PCE rose by 2.9%, falling short of the expected 3.0% and the previous reading of 3.2%.

As inflation shows signs of cooling off, investors are anticipating the possibility of the Federal Reserve (Fed) implementing policy easing. The CME FedWatch Tool suggests that futures traders have priced in a 53% probability of the Fed cutting interest rates for the first time in this cycle during the March meeting. However, the upcoming Federal Open Market Committee (FOMC) statement on January 31 is expected to maintain the Fed Funds rate unchanged.

Traders are likely to closely monitor key economic indicators, including Tuesday's releases of the US Housing Price Index and Consumer Confidence figures to gain additional market insights. On the Swiss docket, Wednesday's Real Retail Sales and the ZEW Survey will be eyed to assess the overall health of the Swiss economy.