The USD/CHF currency pair remains under pressure, trading near 0.8050 during the Asian session on Friday, as the US Dollar (USD) struggles amid growing expectations of a Federal Reserve (Fed) rate cut in September. 

The pair has retraced its recent gains from the previous session, reflecting a shift in market sentiment as investors weigh the implications of softer US labor market data and ongoing safe-haven flows into the Swiss Franc (CHF). The article by LevaQuant’s broker Mathew Sharp offers expert commentary and a comprehensive breakdown of the subject.

Markets are now pricing in over a 99% chance of a 25-basis-point Fed rate cut in September, according to the CME FedWatch Tool, up from 87% just a week ago. The surge in expectations comes amid mixed US economic data, heightening concerns over slower economic growth and weaker inflation pressures in the United States.

Recent labor market indicators have strengthened expectations of a Fed rate adjustment. U.S. initial Jobless Claims climbed to 237K for the week ending August 30, up from 229K and above the market forecast of 230K. 

The ADP Employment Report revealed an increase of 54,000 jobs in August, missing the forecast of 65,000, following a revised July gain of 106,000 (up from 104,000). These figures indicate a cooling labor market, which could influence the Fed’s monetary policy in the months ahead.

Traders are now turning their focus to the upcoming US Nonfarm Payrolls (NFP) report, which is expected to provide more clarity on the health of the US economy. Economists project that the NFP will show an increase of approximately 75,000 jobs in August, while the Unemployment Rate is anticipated to remain steady at 4.3%. 

Market participants view the NFP as a key market mover, capable of driving USD volatility and influencing risk sentiment across global markets.

On the other side, the Swiss Franc (CHF) continues to benefit from safe-haven inflows, amid mounting global debt concerns, persistent inflation risks, and geopolitical uncertainties. The yield on the 10-year Swiss government bond dropped to 0.30% on Thursday, down more than 5.5%, reflecting broad-based risk aversion in financial markets. 

The decline in yields highlights investor demand for low-risk assets, which supports CHF strength relative to the USD.

The Swiss National Bank (SNB) is widely expected to maintain its policy rate at 0% later this month. August inflation in Switzerland remained at 0.2%, comfortably within the SNB’s target range of 0%-2%, signaling that monetary policy may remain accommodative. 

This stable inflation environment supports the CHF as a reliable safe-haven currency, particularly amid global economic uncertainty and market jitters surrounding the Fed’s policy direction.

From a technical perspective, the USD/CHF pair faces immediate resistance near 0.8100, while support remains around 0.8030-0.8050. A sustained break below this zone could accelerate the downtrend, driven by growing market confidence in a Fed rate cut and persistent CHF demand. 

Conversely, any upside rebound in the USD, triggered by stronger-than-expected US employment data or renewed risk appetite, could push the pair back toward 0.8100-0.8150.

Market watchers emphasize that the Fed’s September decision will be influenced not only by labor market conditions but also by broader macroeconomic indicators, including inflation trends, consumer spending, and financial stability risks. Given the Fed’s dual mandate of price stability and maximum employment, traders anticipate careful messaging from Federal Reserve officials, as any deviation from current expectations could spark volatility across currency and bond markets.

In summary, the USD/CHF pair is navigating a delicate balance between a weakening USD, fueled by heightened Fed rate cut bets, and a resilient CHF supported by safe-haven flows and stable Swiss inflation data. With the US Nonfarm Payrolls report looming, the pair is likely to experience heightened volatility, making it a focal point for FX traders, hedge funds, and institutional investors looking to position ahead of the Fed’s policy announcement.

Key takeaways for USD/CHF traders:

• The USD is under pressure amid rising odds of a 25-bps Fed rate cut in September.
• US labor market data is weaker than expected, with Initial Jobless Claims and ADP Employment indicating a cooling economy.
• Swiss Franc inflows remain strong due to safe-haven demand, supported by low government bond yields and stable SNB policy rates.
• Immediate technical support is near 0.8030-0.8050, with resistance around 0.8100.
• Upcoming US Nonfarm Payrolls are critical and could drive short-term USD/CHF volatility.

As markets await the NFP report, the USD/CHF is likely to remain sensitive to both fundamental data releases and risk sentiment shifts, highlighting the importance of monitoring macroeconomic indicators, central bank policy expectations, and technical support/resistance levels in guiding trading decisions.