USD/CHF advances to near 0.8550 due to less likelihood of an aggressive Fed rate cut
- USD/CHF appreciates as August’s US inflation data decrease the odds of an aggressive rate cut by the Fed in September.
- CME FedWatch Tool suggests the odds of a 50 bps rate cut by the Fed have decreased to 15.0%.
- The yield on the Swiss 10-year government bond dropped below 0.4%, marking fresh three-week lows.
USD/CHF appreciates for the second successive session, trading around 0.8550 during the European hours on Thursday. The US Dollar (USD) receives support as Treasury yields extend its gains for the second successive day.
The US Dollar Index (DXY), which measures the value of the US Dollar against six other major currencies, continues its winning streak for the fifth consecutive day. The DXY trades around 101.80 with 2-year and 10-year yields on US Treasury bonds standing at 3.67% and 3.65%, respectively.
Additionally, the upside of the USD/CHF pair could be attributed to rising expectations of a smaller interest rate cut by the Fed in September. August’s US Consumer Price Index (CPI) data showed that headline inflation dropped to a three-year low. This development has heightened the likelihood that the Federal Reserve (Fed) will begin its easing cycle with a 25-basis points interest rate cut in September.
The US Consumer Price Index dipped to 2.5% year-on-year in August, from the previous reading of 2.9%. The index has fallen short of the expected 2.6% reading. Meanwhile, headline CPI stood at 0.2% MoM. Core CPI ex Food & Energy, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose to 0.3% from the previous 0.2% reading.
The yield on the 10-year Swiss government bond depreciates below 0.4% to reach new three-week lows. This drop coincided with a surge in the Swiss Franc (CHF), which reached its highest level in 2024, fueling expectations that the Swiss National Bank (SNB) might implement a substantial rate cut later this year.
Swiss inflation fell to 1.1% in August, further intensifying speculation about an imminent rate cut by the SNB. The market is anticipating a 25 basis point reduction at its September meeting, with a total of 55 basis points of easing expected by the end of the year.
Swiss economy FAQs
Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.
Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.
As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.
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