The USD/CHF pair is on the rise as August’s US inflation data reduces the chances of a significant rate cut by the Federal Reserve in September. The CME FedWatch Tool now indicates only a 15.0% probability of a 50 bps rate cut by the Fed.
During European trading hours on Thursday, the USD/CHF pair is trading around 0.8550 for the second consecutive session. The US Dollar is gaining support as Treasury yields continue to rise for the second day in a row.
The US Dollar Index (DXY) is experiencing a winning streak for the fifth day in a row, currently trading around 101.80. The 2-year and 10-year yields on US Treasury bonds are at 3.67% and 3.65%, respectively.
The potential for a smaller interest rate cut by the Fed in September is contributing to the uptrend of the USD/CHF pair. August’s US Consumer Price Index (CPI) data revealed a drop in headline inflation to a three-year low, suggesting that the Fed may opt for a 25-basis points rate cut to kick off its easing cycle.
Swiss government bond yields are also declining, with the 10-year yield falling below 0.4% to reach new three-week lows. This drop aligns with a surge in the Swiss Franc, leading to speculation that the Swiss National Bank (SNB) may implement a significant rate cut later this year.
Swiss inflation dropped to 1.1% in August, increasing expectations of an imminent rate cut by the SNB. The market anticipates a 25 basis point reduction at the September meeting, with a total of 55 basis points of easing expected by year-end.
Analysis
The USD/CHF pair is experiencing a positive trend due to decreased odds of a large rate cut by the Fed, supported by favorable US inflation data. This could lead to a more stable currency market and impact investment decisions. Additionally, the decline in Swiss government bond yields and the potential rate cut by the SNB may affect the Swiss economy and the value of the Swiss Franc. Investors should monitor these developments closely to make informed financial decisions.