USD/CHF softens below 0.8550 amid geopolitical risks

• USD/CHF trades weaker to around 0.8535 in Tuesday's early European session, down 0.16% on the day. 
• The intensifying Middle East tensions underpin the Swiss Franc, a safe-haven currency. 
• Fading hopes of a big US rate cut might cap the pair's downside. 

The USD/CHF pair edges lower to near 0.8535 during the early European session on Tuesday. The ongoing geopolitical tensions in the Middle East provide some support to safe-haven assets like the Swiss Franc (CHF). 

Early Tuesday, Iran warned Israel against any attacks on the Islamic Republic a week after Tehran fired a barrage of missiles on it, raising fears of wider war in the Middle East. Investors will closely monitor the development surrounding geopolitical risks in the region. Any signs of escalating tensions could boost the safe-haven flows, benefiting the CHF. 

On the other hand, Friday's upbeat US jobs report prompted traders to further scale back bets for an oversized interest rate cut by the Federal Reserve (Fed) in November. This might lift the Greenback and cap the downside for USD/CHF. 

Bob Parker, senior advisor at the International Capital Markets Association, noted the case for aggressive Fed rate cuts is unlikely. "Yes there is a case for modest rate cuts, there is a case for 25 to 50 basis point cuts by January next year, but a case for 50 basis point cuts at the next meeting just does not exist," said Parker. 

There is now nearly 86.0% possibility that the Fed's target range for the federal funds rate will be cut by a quarter percentage point to 4.5% to 4.75% in November, according to the CME Group's FedWatch tool. Meanwhile, the chance of the rate remaining at 4.75% to 5% stands at 14.0%. Investors will take more cues from the US Consumer Price Index  (CPI) inflation data, which is due on Thursday. This report could offer some hints about the US inflation trajectory and influence the Fed about the future US interest rate outlook.