USD/CHF trades cautiously near 0.8000 at the start of busy US-data week
- USD/CHF struggles for firm-footing as the Fed is expected to cut interest rates this month.
- The US Dollar trades cautiously ahead of an array of US labor market-related data.
- This week, the Swiss Franc will be influenced by the inflation data for August.
The USD/CHF pair trades with caution near 0.8000 during the Asian trading session on Monday. The Swiss France pair struggles to gain ground as investors turn extremely cautious ahead of an array of United States (US) labor market-related data publishing this week.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to the monthly low around 97.60.
Market participants will pay close attention to US job-related data to get cues about the current status of the labor market. A significant downward revision in the Nonfarm Payrolls (NFP) figures for May and June in the July’s report intensified investors’ speculation for an interest rate cut by the Federal Reserve (Fed) for the September policy meeting.
According to the CME FedWatch tool, there is an 87.6% chance that the Fed will cut interest rates in the policy meeting this month.
Meanwhile, US appeals court has accused President Donald Trump on Friday of wrongly invoking the emergency law to fulfil his tariff agenda, which they called as “illegal”, an event that has raised concerns over the credibility of US administration. This has also exerted pressure on the US Dollar.
In the Swiss region, investors await the Consumer Price Index (CPI) data for August, which is scheduled for Thursday. Month-on-month CPI is expected to have remained flat again, a scenario that will boost expectations of the Swiss National Bank (SNB) pushing interest rates into thenegative territory.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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