USD/CHF depreciates to near 0.8800 despite expectations of the Fed prolonging higher rates

• USD/CHF extends losses towards the vicinity of 0.8800 amid a subdued US Dollar.
• The US Fed is expected to uphold elevated policy rates to tackle persistent inflation.
• Swiss Franc gained support from favorable Swiss Trade Balance figures on Tuesday.

USD/CHF moves downward for the second consecutive day, trading lower near 0.8800 during the Asian session on Wednesday. The weakening of the USD/CHF pair can be attributed to a softer US Dollar (USD), which is influenced by subdued US Treasury yields. This downturn may reflect market sentiment regarding potential rate cuts by the Federal Reserve (Fed) in upcoming meetings.

However, the US Federal Reserve is expected to maintain higher policy rates for an extended period to address persistent inflation concerns, particularly in light of recent robust consumer and producer prices data from the United States (US).

Based on the CME FedWatch Tool, the probability of a Fed rate cut has notably decreased to 8.5% for March and 30.7% for May. Instead, market expectations are now leaning towards the commencement of easing in June, with a likelihood of 54.3%.

The US Dollar Index (DXY) continues to decline, nearing 103.90, while the yields on US Treasury bonds, specifically the 2-year and 10-year, stand at 4.59% and 4.26%, respectively, at the time of writing. Traders are eagerly anticipating the release of the Federal Open Market Committee (FOMC) Minutes later in the North American session to glean further insights into the Federal Reserve's stance on interest rates.

On Tuesday, the Swiss Franc (CHF) received upward support from favorable Swiss Trade Balance figures. The report indicated a trade surplus of 4,738 million in January, surpassing December's figure of 1,271 million. Additionally, the Federal Statistical Office of Switzerland is set to unveil the Employment Level for the fourth quarter of 2023 on Friday.