USD/CHF rises to near 0.8600 as US Treasury yields continue to rise

• USD/CHF advances as the US Dollar gains ground amid rising Treasury yields.
• The Greenback may struggle due to the rising odds of a 50-basis point Fed rate cut in September.
• Traders await the SNB’s FX Reserves data to understand the central bank’s interventions in influencing the Swiss Franc.

USD/CHF breaks its six-day losing streak, trading around 0.8590 during the Asian session on Wednesday. This upside is attributed to the improved US Dollar (USD) amid rising Treasury yields. The US Dollar Index (DXY) extends its gains for the second day, reaching 103.30 with 2-year and 10-year yields on US Treasury bonds standing at 4.02% and 3.91%, respectively, at the time of writing.

However, the rising expectations of a more aggressive rate cut starting in September after the weaker US employment data in July raised the fear of a looming US recession. This may put a cap on the upside of the USD/CHF pair. According to the CME FedWatch tool, there is now a 67.5% probability of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September, up from 13.2% a week earlier.

According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly noted on Monday that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.” Additionally, Chicago Fed President Austan Goolsbee stated that the central bank is prepared to act if economic or financial conditions worsen.

In Switzerland, Real Retail Sales unexpectedly dropped by 2.2% year-on-year in June, falling short of market expectations for a 0.5% increase and following a revised 0.2% decline in May. This represents the second consecutive month of contraction in retail sales and the most significant decline since September 2023, data showed on Tuesday.

In July, the Swiss Unemployment Rate remained steady at 2.3% on a non-seasonally adjusted basis, unchanged from the previous three months. However, the seasonally adjusted jobless rate slightly increased to 2.5%, up from 2.4% previously.

Traders are likely looking out for the Foreign Currency Reserves data by the Swiss National Bank (SNB) scheduled to be released on Wednesday. This information sheds light on the SNB's activities in the currency market, particularly their efforts to influence the exchange rate of the Swiss Franc.