USD/CHF faces sharp sell-off near 0.8500 as SNB cuts interest rates by 25 bps to 1%

• USD/CHF falls sharply from 0.8500 as the SNB reduces its key borrowing rates by 25 bps for the consecutively third meeting.
• The SNB was expected to cut interest rates due to low inflation environment.
• Investors await the US PCE inflation for fresh Fed interest rate guidance.

The USD/CHF pair drops sharply from the psychological resistance of 0.8500 in Thursday’s European session. The Swiss Franc asset faces selling pressure as the Swiss National Bank (SNB) cuts interest rates by 25 basis points (bps) to 1%. This is the third straight SNB's 25 bps interest rate cut.

The SNB was widely anticipated to reduce its key borrowing rates further as inflationary pressures in the Swiss economy have settled more than the bank’s target of 2%. The Swiss annual Consumer Price Index (CPI) has decelerated to 1.1% in August.

Meanwhile, the US Dollar (USD) clings to Thursday’s recovery move as Federal Reserve (Fed) policymakers, including Chair Jerome Powell, line up to comment on the economy and the interest rate outlook. The comments from Fed policymakers will indicate whether the central bank will deliver a second consecutive larger-than-usual 50 bps interest rate cut in November or will slow down the policy-easing cycle by reducing interest rates with a gradual rate of 25 bps.

In the monetary policy meeting last week, the Fed started the rate-cut cycle with a 50-bps decline in interest rates as policymakers were concerned about the deteriorating job growth pace.

The CME FedWatch tool shows that the possibility of the Fed reducing interest rates by 50 bps to 4.25%-4.50% in November has increased to 61% from 39% a week ago.

On the economic front, investors await the United States (US) Personal Consumption Expenditure Price Index (PCE) data for August, which will be published on Friday. Annual core PCE inflation, a Fed’s preferred inflation measure, is estimated to have grown at a faster pace of 2.7% against the July print of 2.6%.