USD/CHF rebounds as investors expect one more interest rate hike from Fed in 2023

• USD/CHF recovers from 0.8820 as the Fed is expected to raise interest rates one more time this year.
• Fed Powell warned that the process of achieving price stability has a long way to go.
• Investors will keenly watch the US labor market and ISM Manufacturing PMI data for August.

The USD/CHF pair finds support after a correction near 0.8820 as chances of one more interest rate hike by the Federal Reserve (Fed) deepened. The Swiss Franc asset is expected to extend recovery further as further policy tightening by the Fed will widen the Fed-Swiss National Bank (SNB) policy divergence.

S&P500 futures add some gains in Europe, portraying strength in the risk appetite of the market participants. US equities were heavily bought on Friday despite Fed Chair Jerome Powell delivering a hawkish commentary. The appeal for risk-sensitive assets improved as Fed Powell reiterated the need for more interest rate hikes but it will be data-dependent.

Fed Powell warned that the process of achieving price stability has a long way to go. Therefore, the Fed is expected to keep interest rates higher for a longer period.

Cleveland Fed Bank President Loretta Mester said she supports one more interest rate hike, though not necessarily in September. She emphasized on achieving price stability by the end of 2025 and should not allow it to drift into 2026. After Mester and Powell’s hawkish commentary, chances of an interest rate hike in November shoot above 50%.

Investors will keenly watch the United States labor market and ISM Manufacturing PMI data for August, which will be released later this week.

Meanwhile, the Swiss Franc remains on tenterhooks as investors shift focus to the SNB interest rate decision, which will be announced later this month. Investors remain mixed about policy stance as Swiss inflation has come down to near 2%. It would be worth watching whether the SNB Chairman Thomas J. Jordan would remain hawkish to ensure inflation below 2% or allow the current monetary policy to demonstrate its ability to tame inflation.