The Swiss Franc (CHF) remained under pressure on Friday, even as the US Dollar (USD) gave back some of its gains following the release of the latest US Consumer Price Index (CPI) report. The USD/CHF currency pair traded around 0.8150, after reaching an intraday high of 0.8170, marking its highest level since July 30 and positioning for a third consecutive weekly gain [1].
The US headline CPI rose 0.4% month-over-month in August, matching market expectations and accelerating from July's 0.1% increase. Annual inflation held steady at 3.4%, in line with forecasts. However, core CPI increased 0.3% month-over-month, surpassing the 0.2% forecast, while the annual core rate eased to 2.4% from 2.5% [1]. The US Dollar Index (DXY) hovered around 99 after briefly spiking to 99.36 in the immediate aftermath of the data, but demand for the Greenback was tempered by a pullback in US Treasury yields and oil prices [1].
Market expectations for a Federal Reserve rate hike at the September 15-16 meeting rose sharply, with the CME FedWatch Tool indicating an 85% probability, up from 67% earlier in the day [1]. Meanwhile, preliminary University of Michigan data showed a decline in consumer sentiment, with the index falling to 47.8 in September from 51.7, and the Consumer Expectations Index dropping to 45.8 from 51.5. One-year inflation expectations rose to 4.6% from 4.0%, and the five-year measure increased to 3.4% from 3.3% [1].
The Swiss Franc faced limited buying interest, underperforming its major peers. Swiss National Bank (SNB) Chairman Martin Schlegel stated that the Swiss Franc exchange rate poses a challenge for the Swiss economy, reinforcing expectations that the SNB is prepared to intervene if the currency appreciates sharply [1]. Switzerland's subdued inflation supports the SNB's zero-interest-rate policy, in contrast to other major central banks expected to tighten policy further due to elevated oil prices and global inflation risks [1]. This divergence could leave Swiss rates further behind, encouraging investors to favor higher-yielding currencies and use the Swiss Franc for carry trades, a trend already visible as expectations of faster Bank of Japan tightening strengthen the Japanese Yen and unwind Yen-funded positions [1].
CONCLUSION
The Swiss Franc continues to struggle against the US Dollar, despite a pullback in the Greenback following US CPI data. Market expectations for a Fed rate hike have increased, while the SNB maintains a dovish stance, potentially widening the interest rate gap and encouraging carry trades against the Franc. The SNB remains vigilant about the currency's strength, but subdued Swiss inflation supports its current policy.