USD/CHF trades near 0.8350, pulls back from recent gains due to market caution

• USD/CHF depreciates as the US Dollar struggles following Moody's decision to downgrade the US credit rating by one notch.
• US Treasury Secretary Bessent stated that Trump intends to implement tariffs on trade partners that fail to negotiate in "good faith".
• The Swiss Franc faces challenges due to growing expectations of additional monetary easing by the Swiss National Bank.

USD/CHF is retreating from gains made in the previous session, trading near 0.8360 during Asian hours on Monday. The decline follows a surprise downgrade of the US government's credit rating, which sparked renewed selling in the US fixed income market.

Moody's has downgraded the US credit rating by one notch--from Aaa to Aa1--citing surging debt levels and an increasing burden from interest payments. This follows similar downgrades by Fitch Ratings in 2023 and Standard & Poor's in 2011.

However, the US Dollar (USD) received support from renewed optimism over a 90-day US-China trade truce and expectations of further trade agreements with other nations. Meanwhile, US Treasury Secretary Scott Bessent told CNN on Sunday that President Donald Trump plans to impose tariffs at previously threatened levels on trade partners who fail to negotiate in "good faith."

Economic data released last week showed signs of easing inflation, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) indicating a slowdown in price pressures. These figures have increased expectations that the Federal Reserve could cut interest rates further in 2025, adding to the downward bias on the Greenback. Moreover, weak US Retail Sales data has reinforced concerns about a prolonged period of subdued economic growth.

On the downside, losses in the USD/CHF pair may be limited by weakness in the Swiss Franc (CHF), amid growing expectations of additional monetary easing by the Swiss National Bank (SNB). SNB Chairman Martin Schlegel recently stated that all policy tools--including a potential return to negative interest rates--remain on the table, although he expressed a desire to avoid such measures. Markets are now broadly expecting a 25 basis-point cut to zero at the SNB's next policy meeting on June 19.