USD/CHF falls near 0.8670 on risk aversion due to Middle East situation

• USD/CHF loses ground as investors are concerned about the situation between Hamas and Israel.
• Swiss Franc gains as risk sentiment emerges due to Houthi’s attacks on commercial ships.
• San Francisco Fed President Mary Daly mentioned that speculating about rate cuts in 2024 is premature.

USD/CHF continues to lose ground on the back of the Middle East situation and dovish sentiment surrounding the US Federal Reserve’s (Fed) interest rates trajectory in 2024. The USD/CHF pair trades lower near 0.8670 during the Asian session on Tuesday.

The situation between Israel and Hamas seems to have escalated as the Iran-led Houthi militant group conducted attacks on commercial ships near Libya. Major shipping companies are considering avoiding the Suez Canal waterway. This has prompted the sentiment of risk aversion over trade and supply, which could lead investors toward the safe-haven Swiss Franc (CHF).

However, the Swiss Franc (CHF) faced a hurdle when the Swiss National Bank (SNB) opted to keep interest rates unchanged for the second consecutive rate announcement. SNB Chairman Thomas Jordan acknowledged a slight decrease in inflationary pressures, emphasizing the persistent high level of uncertainty.

The US Dollar (USD) encounters challenges stemming from a weakened sentiment, primarily influenced by the Federal Open Market Committee's (FOMC) dovish statement. Additionally, dovish remarks from various Fed members exerted pressure on the Greenback. However, US Federal Reserve (Fed) Bank of New York President John Williams dispelled speculation about a potential rate cut in March by the FOMC.

Additionally, San Francisco Fed President Mary Daly mentioned that even if there are three rate cuts next year, the Fed would uphold a relatively restrictive stance. Speculating on which meetings might witness a shift in the policy stance for the upcoming year is premature. Daly emphasized that ongoing work is in progress, with the focus extending beyond simply reducing inflation to 2%.

The US Dollar Index (DXY) attempts to retrace its recent losses on the back of improved US Treasury yields. The 2-year and 10-year yields on US bond coupons stands higher at 4.46% and 3.94%, respectively, by the press time.