Key facts
- The dollar edged higher against the Swiss franc following U.S. inflation data.
- US inflation data showed a rise in consumer prices.
- Markets are pricing in an 86% chance of a 25 basis-point Federal Reserve rate hike next week.
- The USD/CHF pair returned above 0.8100.
- US Producer Price Index (PPI) figures are expected to show an acceleration in inflation.
- The Swiss National Bank (SNB) is expected to keep interest rates at 0% this year and into next.
The dollar strengthened against the Swiss franc as U.S. inflation data indicated rising consumer prices, reinforcing expectations that the Federal Reserve will implement an interest rate hike next week. Markets are now pricing in an 86% chance of a 25 basis-point increase, up from approximately 72% a day earlier.
The USD/CHF pair returned above 0.8100, though it remains within its weekly trading range. The Swiss franc is under pressure due to a monetary policy divergence between the Swiss National Bank (SNB) and other major central banks, while the U.S. dollar is vulnerable ahead of inflation figures. Global risk appetite is subdued amid rising oil prices and escalating tensions between the US and Iran.
U.S. Producer Price Index (PPI) figures are anticipated to confirm an acceleration in inflation, with the year-over-year rate expected to reach 5.3% in August, up from 4.7% in July. The core PPI is projected to rise to 4.6% from 4.2% in the same period. Despite these figures, volatility in the dollar is expected to be limited, with attention focused on Friday's Consumer Price Index (CPI) report. Philip Wee of DBS Group Research suggests that while hotter inflation typically lifts the dollar, the current environment of strong U.S. data, increased Fed hike odds, and elevated energy prices may only allow for limited near-term gains, presenting an opportunity for a return to the "USD debasement trade."
In Switzerland, economic data has been sparse this week. However, recent figures showed retail consumption and consumer inflation growing beyond expectations, and Gross Domestic Product expanding at its fastest pace in five years in the second quarter. These positive developments are not expected to alter the SNB's stance of maintaining interest rates at 0% throughout this year and well into the next, thus limiting the positive impact on the Swiss franc.