Swiss Franc strengthens as US Dollar holds losses despite Fed rate hike odds

USD/CHF loses ground for the third consecutive day, trading around 0.8090 during the Asian hours on Wednesday. The pair remains subdued as the US Dollar (USD) holds losses despite a hawkish tone surrounding the Federal Reserve (Fed) policy outlook.

According to the CME FedWatch Tool, traders are currently pricing in about a 60% chance of an interest rate hike at the US central bank's upcoming policy meeting. Looking ahead, the US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data will take center stage later this week. These crucial readings may shed fresh light on the Federal Reserve's next steps ahead of the September meeting.

Moreover, rising oil prices intensify inflation concerns and strengthen expectations for a Federal Reserve (Fed) rate hike. Crude oil prices have climbed following a US strike on several Iranian tankers near Kharg Island, a major export hub. These attacks have heightened geopolitical tensions and stoked market concerns regarding potential disruptions to global oil supplies.

Swiss inflation doubled in August as persistent Middle East tensions heightened global energy prices and stoked inflationary concerns. However, this spike is expected to be temporary, as electricity prices are projected to drop by about 4% next year, which will likely weigh on inflation in the months ahead.

USD/CHF seen confined to familiar range as consolidation extends

Strategists at UOB Group maintain a neutral medium-term stance on USD/CHF, reiterating that, over the next one to three weeks, they “continue to hold the same view as yesterday (07 Sep, spot at 0.8100).” For now, UOB expects the Dollar to remain directionless, with the pair “trading in a range between 0.8055 and 0.8155,” underscoring an ongoing consolidation phase rather than a decisive trend move.