USD Gains on Rate Hike Expectations as SNB Faces Currency Challenge
The US Dollar (USD) gained against the Swiss Franc (CHF) on Friday despite weakening overall, as expectations for an interest rate hike by the Federal Reserve next week strengthened. The USD/CHF pair rose to its highest level since July 30, trading around 0.8150 after touching an intraday high of 0.8170.
The US Consumer Price Index (CPI) report, released earlier in the day, showed a headline CPI rise of 0.4% month-over-month in August, matching market expectations but accelerating from the 0.1% increase recorded in July. Core CPI, which excludes volatile food and energy prices, increased 0.3% MoM, above the 0.2% forecast.
The US Dollar Index (DXY) briefly climbed to 99.36 in reaction to the data but pulled back as US Treasury yields and Oil prices retreated. The CME FedWatch Tool now prices in an 85% chance of a rate hike at the September 15-16 meeting, up from 67% earlier in the day.
The Swiss National Bank's (SNB) zero-interest-rate policy is supported by Switzerland's subdued inflation backdrop, which contrasts with other major central banks tightening monetary policy due to elevated Oil prices. This has left Swiss interest rates behind those in other major economies, encouraging investors to favour higher-yielding currencies and use the low-yielding CHF for carry trades.