Swiss Franc falls against US Dollar as headline PCE inflation tops forecasts

USD/CHF advances as the US Dollar gains following the latest US inflation report.
Uncertainty surrounding the Strait of Hormuz keeps Oil prices and inflation risks in focus.
Switzerland’s soft inflation backdrop leaves the SNB on course to maintain its zero-interest-rate policy.

Vishal Chaturvedi FXStreet

The Swiss Franc (CHF) weakens against the US Dollar (USD) on Wednesday as the Greenback attracts buyers following the release of the latest United States (US) inflation data. Traders also remain attentive to developments in the Middle East. At the time of writing, USD/CHF trades around 0.8052, up roughly 0.47% on the day.

The headline Personal Consumption Expenditures (PCE) Price Index rose 0.2% MoM in July, exceeding the 0.1% forecast and reversing June’s 0.1% decline. On an annual basis, headline inflation remained at 3.7%, above market expectations of 3.6%.

Meanwhile, the core PCE Price Index, the Federal Reserve’s (Fed) preferred measure of underlying inflation, increased 0.2% MoM, matching expectations but accelerating from the 0.1% rise recorded in June. Annual core inflation held steady at 3.3%, also in line with forecasts.

Although the inflation figures reinforced expectations that the Fed will leave interest rates unchanged at its upcoming meeting, inflation remains well above the central bank’s 2% target. At the same time, tensions in the Middle East are keeping Oil prices elevated and clouding the inflation outlook, leaving the possibility of an interest-rate hike on the table.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 99.16, up nearly 0.25% on the day. The Greenback came under selling pressure last week after the US Treasury unexpectedly announced an increase in buybacks of longer-dated government securities, reviving concerns about rising debt and fiscal credibility.

On the geopolitical front, Iran and Oman have yet to finalise an agreement covering transit through the Strait of Hormuz, a senior Iranian source told Reuters. Tehran maintains that the US must lift its naval blockade and that the war must end before normal shipping through the vital waterway can resume.

US President Donald Trump also told Al Jazeera that there is no timetable to resume peace talks with Iran, adding that both economic pressure and military action are working.

On the Swiss side, the ZEW Survey Expectations Index improved to 12.1 in August from 10.0 previously. However, Switzerland’s subdued inflation backdrop supports expectations that the Swiss National Bank (SNB) will keep its policy rate at 0% throughout the year, limiting support for the Swiss Franc.

SNB FAQs

What is the Swiss National Bank?

The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.

How does the Swiss National Bank interest-rate policy affect the Swiss Franc?

The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.

Does the Swiss National Bank intervene in the forex market?

Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.

When does the Swiss National Bank Governing Council decide on monetary policy?

The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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