USD/CHF maintains its position below 0.8700 amid a softer US Dollar

• USD/CHF takes a breather after two days of a winning streak.
• Swiss Franc could receive support from the improved 10-year Swiss bond yield.
• US Dollar made profits on the Fed Powell’s rejection of rate cut in March amid upbeat economic data.

USD/CHF trades lower after registering gains for consecutive two days, edging lower to near 0.8700 during the Asian session on Tuesday. The Swiss Franc (CHF) may be receiving support from the improved 10-year Swiss bond yield, standing at 0.93% by the press time. This movement in the bond yield could be influenced by global market sentiment after the recent comments from Federal Reserve Chair Jerome Powell, who indicated that a rate cut in March is premature.

In its final meeting of 2023, the Swiss National Bank (SNB) opted to keep its key interest rate unchanged at 1.75%, marking the conclusion of its recent tightening cycle. Consumer prices remained steady on a monthly basis, while the core rate experienced a slight increase. Projections for the current year indicate that inflation is expected to average below the 2.0% threshold. Given these considerations, there is a consensus expectation among analysts that the SNB might initiate its first rate cut in September 2024.

The US Dollar Index (DXY) takes a breather after registering gains in the previous two sessions. The DXY trades slightly lower around 104.30, which could be attributed to the weaker US Treasury yields. The 2-year and 10-year yields on US bonds stand at 4.43% and 4.12%, respectively, at the time of writing.

In January, the US ISM Services Purchasing Managers' Index (PMI) posted a reading of 53.4, surpassing both the anticipated figure of 52.0 and the prior month's 50.5. Furthermore, the ISM Services Employment Index rose to 50.5 from the previous reading of 43.8.

Federal Reserve Chairman Jerome Powell underscored the importance of vigilantly observing inflation's sustained movement toward the 2% core target. This stance had the effect of strengthening the US Dollar, providing support to the USD/CHF pair.