News Maker 23

The Swiss franc weakened against the US dollar on Friday (September 11th), as expectations grew that the Federal Reserve would raise interest rates at its September meeting. The USD/CHF pair rose for the third consecutive day and hovered around 0.8140 during the Asian session.

The dollar strengthened after US producer inflation data again showed significant price pressures. The US Producer Price Index rose 5.4% year-on-year in August, higher than the 5.3% forecast and up from 4.8% in the previous month. On a monthly basis, the PPI rose 0.4%, while the Core PPI increased 0.2%.

This data has further strengthened the market's confidence that the Fed still has reason to raise interest rates. The probability of a 25 basis point rate hike at next week's meeting is now above 70%, a significant increase compared to before the PPI data was released. Higher interest rate expectations make the dollar more attractive to investors.

The Swiss franc is also under pressure from the interest rate differential between the United States and Switzerland. The Swiss National Bank is expected to maintain its policy interest rate around 0% until the end of the year, while the Fed is likely to tighten further. This difference makes dollar-based assets offer more attractive returns than franc-denominated assets.

However, franc weakness is expected to be limited. The Swiss franc remains known as a safe-haven currency, typically sought after during times of heightened market uncertainty. The ongoing geopolitical tensions in the Middle East and volatility in the global bond market have the potential to maintain demand for the franc as a safe haven asset.

The market's next focus will be on the US Consumer Price Index (CPI) release. If consumer inflation is higher than expected, expectations of a Fed rate hike could strengthen, driving USD/CHF to continue rising. Conversely, a lower CPI could potentially pressure the dollar and provide room for the Swiss franc to strengthen again. (CP)