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Swiss Franc slides to two-week low as oil-driven Fed hike bets boost USD

  • USD/CHF attracts buyers for the fourth straight day on Thursday amid a broadly firmer USD.
  • Inflation risks amid volatile oil prices keep Fed hike bets on the table and underpin the buck.
  • Traders now look to the US PPI and Weekly Jobless Claims data for short-term opportunities.

The USD/CHF pair prolongs the weekly uptrend for the fourth consecutive day and climbs to a two-week high, around 0.8045, during the Asian session on Thursday amid a firmer US Dollar (USD). Moreover, the fundamental backdrop favors bulls and backs the case for further appreciation for spot prices.

The initial market reaction to the in-line US Consumer Price Index (CPI) report, released on Wednesday, fades rather quickly amid concerns about inflation risks stemming from volatile oil prices and the US-Iran standoff. President Donald Trump again claimed that the US has total control over the Strait of Hormuz, while Iran has pledged to keep the vital waterway closed until all its demands are met. Moreover, Iran-backed Houthis in Yemen escalated attacks on vessels in the Red Sea and Bab el-Mandeb Strait, increasing war-risk premiums, which continue to support crude oil prices.

Analysts at HSBC highlight that “uncertainties over the path to a resolution of the Middle East conflict have caused the oil price to move in a volatile manner in recent weeks – firstly back up to USD100/b, then back below USD80/b – the difference having quite a sizeable impact on the global economic outlook.” Against this backdrop, the bank cautions that “headline inflation risks, therefore, remain acute: beyond oil and gas, other commodity prices remain elevated,” underscoring the persistence of price pressures even as energy markets swing sharply.

Investors seem convinced that higher energy prices will rekindle inflationary pressures and force the US Federal Reserve (Fed) to stick to its hawkish stance. According to the CME Group's FedWatch Tool, traders are currently pricing in a nearly 80% chance that the US central bank will raise borrowing costs at least once by the end of this year. This, along with persistent geopolitical uncertainties, helps the safe-haven USD build on the previous day's goodish rebound from the post-CPI swing low and climb to a one-week high, which, in turn, is seen as acting as a tailwind for the USD/CHF pair.

Market participants now look to the US economic docket, featuring the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims data. This, along with speeches from influential FOMC members, would drive USD demand and provide some impetus later during the North American session. Apart from this, the incoming geopolitical headlines should produce short-term trading opportunities around the USD/CHF pair. Nevertheless, the aforementioned supporting factors suggest that the path of least resistance for spot prices remains to the upside.

Swiss Franc Price This week

The table below shows the percentage change of Swiss Franc (CHF) against listed major currencies this week. Swiss Franc was the strongest against the New Zealand Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.28%-0.01%1.08%0.00%0.25%1.14%0.81%
EUR-0.28%-0.29%0.77%-0.37%-0.11%0.75%0.43%
GBP0.00%0.29%1.03%-0.10%0.22%1.05%0.71%
JPY-1.08%-0.77%-1.03%-0.78%-0.49%0.22%-0.06%
CAD-0.00%0.37%0.10%0.78%0.30%1.01%0.87%
AUD-0.25%0.11%-0.22%0.49%-0.30%0.85%0.52%
NZD-1.14%-0.75%-1.05%-0.22%-1.01%-0.85%-0.34%
CHF-0.81%-0.43%-0.71%0.06%-0.87%-0.52%0.34%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Swiss Franc from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CHF (base)/USD (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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