USD/CHF TREADS WATERS BELOW TWO-MONTH HIGH AROUND 0.8980

USD/CHF retraces the recent gains ahead of the policy decision by the Fed.

SECO Economic Forecasts improved the growth rate in the current year but revised lower for the year 2024.

The odds of another rate hike by the Fed through the end of the year 2023 have been diminished.

USD/CHF snaps the previous day’s gains, trading lower around 0.8980 during the European session on Wednesday. The US Dollar (USD) could experience the upward support driven by the improved US Treasury yields. The US 10-year Treasury yield stands at 4.35% by the press time, below its highest level in 16 years.

The Economic Forecasts released by the Swiss State Secretariat for Economic Affairs showed that Gross Domestic Product (GDP) growth rate for the year 2023 is up at 1.3% from the previous 1.1% rate. While the forecasts showed the growth for the year 2024 has been reduced to 1.2% from the 1.5% previously.

Moreover, the Consumer Price Index (CPI) forecast figure reduced to 2.2% in the year 2023 from the previous reading of 2.3%. For 2024, the inflation rose to 1.9%, which was seen at 1.5% earlier.

US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against the six other major currencies, trades sideways near 105.20 at the time of writing. Investors anticipate that the US Federal Reserve (Fed) will keep its current interest rates in September. Moreover, as per the CME FedWatch Tool, the odds of another rate hike during the November and December meetings have been reduced.

However, the market sentiment seems to suggest that the Fed is inclined to maintain higher policy rates for an extended period, a factor that could potentially strengthen the Greenback. This perception is rooted in the resilience of the US economy, characterized by a decrease in inflationary pressures and sustained growth in the labor market.

According to a Reuters report, US Treasury Secretary Janet Yellen stated on Tuesday that, it is crucial for the US to experience a slowdown in its growth rate to a level that aligns with its potential growth rate.

Yellen also mentioned "I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions. There may be spillovers from China’s economic difficulties to the US."

Fed’s "dot plots" would be significant to assess the anticipated interest rate trajectory. According to the recent Summary of Economic Projections (SEP), the median estimate from the Fed suggests that interest rates could potentially reach a peak of 5.6%.