USD/CHF retraces its recent gains on risk appetite, inches lower to near 0.8730

• USD/CHF depreciates as US Treasury yields lose ground on risk appetite.
• Risk-on mood improves despite the US Fed’s hawkish stance on interest rate trajectory.
• The appreciation of the CHF curbs Swiss inflation by lowering the cost of imported goods and services.

USD/CHF attempts to recover its recent gains registered in the previous session. The USD/CHF pair edges lower to near 0.8730 during the European hours on Thursday. The improved risk appetite weakened the US Dollar (USD) against the Swiss Franc (CHF). Additionally, the subdued US bond yields are contributing downward pressure to undermining the Greenback.

However, the US Dollar Index (DXY) hovers around 104.10 with the 2-year and 10-year yields on US bond coupons standing at 4.42% and 4.11%, respectively, by the press time. Market sentiment seems to avoid the hawkish stance taken by the US Federal Reserve (Fed) post-January interest rate decision.

The Federal Reserve reiterated its commitment to maintaining elevated interest rates for an extended period. Federal Reserve Chair Jerome Powell dismissed the notion of a rate cut in March, emphasizing the importance of monitoring inflation's sustainable return to the 2% target.

In January, the non-seasonally adjusted Swiss Unemployment Rate (year-on-year) rose to 2.5%, up from the previous figure of 2.3%. Meanwhile, the seasonally adjusted Unemployment Rate (month-on-month) remained unchanged at 2.2%, in line with expectations.

Swiss National Bank (SNB) decided to maintain its key interest rate at 1.75%, signaling the end of its recent tightening phase. The strengthened Swiss Franc has played a role in curbing inflation by lowering the expenses associated with imported goods and services. Forecasts for the current year suggest that inflation is projected to remain below the 2.0% threshold. Consequently, market analysts widely anticipate that the SNB could introduce its first rate cut in September 2024.