Swiss Franc hits 13-month low as rising Oil prices boost Fed rate hike bets
- USD/CHF rises for a fourth straight day, reaching its highest level since June 2025.
- The Greenback gains as surging Oil prices reinforce Federal Reserve rate hike expectations.
- SNB intervention concerns limit demand for the Swiss Franc despite the Middle East war.
USD/CHF climbs to its highest level since June 2025 on Thursday, supported by a broadly stronger US Dollar (USD) as the expanding war in the Middle East pushes Oil prices higher and strengthens Federal Reserve (Fed) rate hike expectations.
At the time of writing, the pair trades around 0.8170, extending gains for the fourth straight day. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.45, its highest level in three weeks.
The war in the Middle East shows no sign of easing after the US and Iran resumed attacks earlier this month. Oil supply disruptions have now spread beyond the Strait of Hormuz to the Bab el-Mandeb Strait after Yemen’s Ansar Allah group attacked two Saudi Oil tankers in the Red Sea.
US President Donald Trump warned in a Truth Social post that “if they do this again, the US will hold Iran responsible,” describing Ansar Allah as a proxy of Tehran. He added that “major military punishment” would be inflicted on both Iran and the Yemeni rebel group.
Surging energy prices raise concerns that inflation could accelerate again, forcing the Fed to tighten monetary policy. According to the CME FedWatch Tool, markets now see an 83% chance of a rate hike in September, while the probability of an increase at next week’s meeting stands near 35%.
On the data front, US Initial Jobless Claims fell to 187K last week, well below market expectations of 212K. The previous week’s reading was revised slightly higher to 209K from 208K. Traders now await the preliminary S&P Global Purchasing Managers Index (PMI) data for July, due on Friday.
The Swiss Franc (CHF) typically attracts demand during periods of geopolitical stress. However, the currency is struggling to benefit from the Middle East war as widening US-Swiss interest-rate expectations and strong demand for the Greenback outweigh its traditional defensive appeal. Meanwhile, the Swiss National Bank (SNB) continues to signal its readiness to intervene against excessive Franc strength, adding pressure on the currency.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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