USD/CHF is moving higher above 0.8000 as the U.S. Manufacturing ISM is awaited.

• USD/CHF is trading in positive territory near 0.8010 in the early European session on Tuesday.
• The pair gains ground due to a stronger US dollar, but the Fed's moderate tone could limit its advance.
• The Real Retail Sales of Switzerland and the ISM Manufacturing of the U.S. for August will be the highlights this Tuesday.

The USD/CHF pair advances towards 0.8015 during the early European session on Tuesday, driven by a modest rebound in the US dollar. However, the upside potential may be limited by growing bets for a rate cut by the Federal Reserve. Personally, I will be watching the Real Retail Sales of Switzerland and the August ISM Manufacturing PMI for more signals on the market direction.

The Fed is likely to deliver a rate cut in September after keeping them stable for nine months. Chairman Powell indicated this possibility, warning that risks to the labor market are increasing. It seems to me that the Fed is becoming increasingly nervous about the employment situation.

Governor Christopher Waller indicated that he would support a cut in September and further cuts in the next three to six months to avoid a labor collapse. Traders are assigning a 90% probability to a 25 basis point cut on September 17, according to CME's FedWatch tool. Will a single cut be enough? I highly doubt it.

On the Swiss front, the geopolitical tensions between Russia and Ukraine could drive flows towards safe-haven assets and support the Swiss franc. Russian drone attacks on electrical facilities in Ukraine left nearly 60,000 customers without electricity on Sunday. Ukrainian President Zelenskyy vowed retaliation by ordering more attacks inside Russia. This escalation seriously concerns me due to its implications for European stability.

Frequently Asked Questions About the Swiss Franc

( What key factors drive the Swiss Franc?

The Swiss Franc )CHF### is the official currency of Switzerland. It is among the ten most traded currencies globally, with volumes that far exceed the size of the Swiss economy. Its value is determined by the overall market sentiment, the economic health of the country, or the actions of the Swiss National Bank, among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro. When this peg was abruptly removed, it resulted in an increase of more than 20% in its value, causing turmoil in the markets.

( Why is the Swiss Franc considered a safe-haven currency?

The Swiss Franc is considered a safe-haven asset due to Switzerland's perceived status: a stable economy, a strong export sector, large central bank reserves, and a political stance of neutrality in global conflicts make the currency a good option for investors fleeing risks. Turbulent times usually strengthen the value of the CHF against other currencies considered riskier.

) How do the decisions of the Swiss National Bank affect the Franc?

The Swiss National Bank meets four times a year to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above the target, the bank will try to control price growth by raising its policy rate. Higher rates generally benefit the Swiss Franc by generating higher returns.

How do economic data influence the value of the Swiss Franc?

The macroeconomic data from Switzerland is key to assessing the state of the economy and can impact the valuation of the Franc. High economic growth, low unemployment, and high confidence are positive for the CHF. Conversely, if the economic data indicates a weakening, it is likely that the CHF will depreciate.

How does the Eurozone monetary policy affect the Swiss Franc?

As a small and open economy, Switzerland heavily relies on the health of neighboring Eurozone economies. The European Union is Switzerland's main economic partner, so macroeconomic and monetary stability in the Eurozone is essential for Switzerland and, therefore, for the Swiss Franc.

Disclaimer: For informational purposes only. Past performance does not indicate future results.