USD/CHF advances to near 0.8550 due to less likelihood of an aggressive Fed rate cut

• USD/CHF appreciates as August's US inflation data decrease the odds of an aggressive rate cut by the Fed in September.
• CME FedWatch Tool suggests the odds of a 50 bps rate cut by the Fed have decreased to 15.0%.
• The yield on the Swiss 10-year government bond dropped below 0.4%, marking fresh three-week lows.

USD/CHF appreciates for the second successive session, trading around 0.8550 during the European hours on Thursday. The US Dollar (USD) receives support as Treasury yields extend its gains for the second successive day.

The US Dollar Index (DXY), which measures the value of the US Dollar against six other major currencies, continues its winning streak for the fifth consecutive day. The DXY trades around 101.80 with 2-year and 10-year yields on US Treasury bonds standing at 3.67% and 3.65%, respectively.

Additionally, the upside of the USD/CHF pair could be attributed to rising expectations of a smaller interest rate cut by the Fed in September. August's US Consumer Price Index (CPI) data showed that headline inflation dropped to a three-year low. This development has heightened the likelihood that the Federal Reserve (Fed) will begin its easing cycle with a 25-basis points interest rate cut in September.

The US Consumer Price Index dipped to 2.5% year-on-year in August, from the previous reading of 2.9%. The index has fallen short of the expected 2.6% reading. Meanwhile, headline CPI stood at 0.2% MoM. Core CPI ex Food & Energy, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose to 0.3% from the previous 0.2% reading.

The yield on the 10-year Swiss government bond depreciates below 0.4% to reach new three-week lows. This drop coincided with a surge in the Swiss Franc (CHF), which reached its highest level in 2024, fueling expectations that the Swiss National Bank (SNB) might implement a substantial rate cut later this year.

Swiss inflation fell to 1.1% in August, further intensifying speculation about an imminent rate cut by the SNB. The market is anticipating a 25 basis point reduction at its September meeting, with a total of 55 basis points of easing expected by the end of the year.