Swiss Franc trims losses against US Dollar amid Japanese intervention concerns

• USD/CHF gives up part of its early advance as the Greenback struggles to hold its recovery.
• Suspected Japanese intervention and the possibility of US action keep the US Dollar under pressure.
• Traders await Swiss inflation data due on Monday.

USD/CHF trims part of its earlier gains on Friday as the US Dollar (USD) struggles to regain momentum following Thursday’s sharp sell-off, which was driven by suspected intervention by Japanese authorities to curb excessive weakness in the Japanese Yen (JPY).

At the time of writing, the pair trades around 0.8086 after reaching an intraday high of 0.8128. USD/CHF is still up around 0.50% on the day but is heading for a weekly loss.

The Greenback initially attempted to recover from six-week lows before losing strength after Reuters reported that the US Treasury had informed several banks it may intervene in the Yen market on Friday and advised them to “stand ready for future action.”

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 100.07, easing from an intraday high of 100.45.

Strategists at Brown Brothers Harriman argue that “the USD rally from May has run its course, with DXY poised to retreat into a 96.00-100.00 range.” They note that the earlier “tailwind to USD from resilient US economic activity” is now being overshadowed by concerns that Fed Chair Kevin Warsh has “fail[ed] to turn tough inflation rhetoric into a credible policy,” thereby “increasing the risk the Fed falls behind the curve in containing inflation.”

On Wednesday, the Fed left interest rates unchanged within the 3.50%-3.75% range for a fifth consecutive meeting, with three policymakers backing an immediate 25-basis-point (bps) hike.

One of the dissenters, Dallas Fed President Lorie Logan, said on Friday, “I would have preferred a quarter-point rate increase to better balance the outlook and risks.” She added that “modest Fed action in the near term would reduce the likelihood of needing sharper action later.”

Traders still see a meaningful chance that the Fed will raise interest rates later this year. According to the CME FedWatch Tool, markets are pricing in around a 65% probability of a hike in September.

On the Swiss side, traders await July Consumer Price Index (CPI) data on Monday. Annual inflation eased to 0.5% in June from 0.6% in May, placing it near the lower end of the SNB’s price-stability range and supporting expectations that the central bank will keep its policy rate at 0%.