USD/CHF drops to near 0.8250 as US Dollar retraces gains due to growing debt concerns

• USD/CHF trades lower as the US Dollar struggles due to growing concerns over the fiscal deficit in the United States.
• The Congressional Budget Office expects that Trump's "One Big Beautiful Bill" may increase the deficit by $3.8 billion.
• The safe-haven CHF receives support from increased risk-off sentiment due to growing US debt, tariff concerns, and geopolitical tensions.

USD/CHF retraces its recent gains registered in the previous session, trading around 0.8260 during the European hours on Friday. Meanwhile, the US Dollar Index (DXY), which tracks the US Dollar (USD) against a basket of six major currencies, is trading lower at around 99.60 near two-week lows. The Greenback stepped down due to growing debt concerns in the United States (US), while Trump's "One Big Beautiful Bill" is on its way to the Senate floor.

The US House of Representatives cleared Trump's budget by a single vote of 215-214 on Thursday, which would deliver tax breaks on tip income and US-manufactured car loans. The proposal is expected to increase the deficit by $3.8 billion, according to the Congressional Budget Office (CBO).

However, the US Dollar received support as stronger US S&P Global Purchasing Managers' Index (PMI) data dampened the odds of further rate cuts by the Federal Reserve (Fed) in upcoming policy meetings. S&P Global Composite PMI posted a 52.1 reading for May, rising from April's 50.6 reading. Meanwhile, the Manufacturing PMI rose to 52.3 from 50.2 prior, while the Services PMI rose to 52.3 from 50.8.

Fed Governor Christopher Waller noted on Thursday, stated that if tariffs are close to 10%, the economy would be in good shape for H2, and the Fed could be in a position to cut interest rates later in the year. The CME FedWatch tool suggests that markets are pricing in nearly a 71% chance that the Fed would keep its interest rates steady through its June and July meetings.

The increased risk-off sentiment due to growing concerns over the US fiscal deficit, along with tariff concerns, raised the safe-haven demand for the Swiss Franc (CHF). Adding to this, geopolitical tensions supported the safe-haven demand. President Trump told European leaders that Russian President Vladimir Putin isn't ready to end the war because he thinks he is winning. Trump proposed lower-level talks at the Vatican between Russia and Ukraine, instead of imposing sanctions.

The growing expectations of additional monetary easing by the Swiss National Bank (SNB) put downward pressure on the Swiss Franc, limiting the downside of the USD/CHF pair. SNB Chairman Martin Schlegel recently stated that all policy tools would be deployed, including a potential return to negative interest rates. However, Schlegel 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.