Swiss Franc Slumps as US Dollar Falters After CPI Report
The US Dollar (USD) has given back some of its gains after the latest Consumer Price Index (CPI) report was released, but it's not affecting the USD/CHF pair as much. The Swiss Franc (CHF) is still underperforming compared to other major currencies.
The CPI data showed that headline inflation rose 0.4% month-over-month in August, matching market expectations and accelerating from July's 0.1% increase. Annual inflation remained steady at 3.4%, in line with forecasts.
However, the US Dollar Index (DXY) is trading around 99 after briefly climbing to 99.36 in response to the data. A pullback in US Treasury yields and Oil prices has tempered demand for the Greenback despite increased rate-hike expectations.
The Federal Reserve (Fed) is now pricing in an 85% chance of raising interest rates at its September 15-16 meeting, up from 67% earlier in the day. This has led to a shift towards higher-yielding currencies and the unwinding of carry trades using the low-yielding Swiss Franc.
SNB Chairman Martin Schlegel stated that 'the Swiss Franc exchange rate is a challenge for the Swiss economy,' reinforcing expectations that the central bank may intervene if the currency appreciates sharply. Switzerland's subdued inflation backdrop supports its zero-interest-rate policy, while other major central banks are expected to tighten monetary policy in response to elevated Oil prices.