USD/CHF climbs above 0.8000 as Fed rate-cut bets fade after steady US CPI

• The USD/CHF jumps above 0.8000, trading close to 0.8020 during the American trading session.
• US CPI increases by 0.3% MoM to 2.7% YoY in June, with Core CPI steady at 2.9% YoY.
• Traders now see a lower chance of a Fed rate cut in September, with odds dropping to around 54%.

The Swiss Franc (CHF) weakens against the US Dollar (USD) on Tuesday, as traders flock to the Greenback in response to hotter-than-expected US inflation data. The Consumer Price Index (CPI) figures reignited bets that the Federal Reserve may delay its first interest rate cut, boosting US Treasury yields and driving broad-based demand for the US Dollar, with USD/CHF climbing above the 0.8000 mark for the first time since late June.

At the time of writing, the USD/CHF pair is trading near 0.8021, up over 0.50% on the day.

The latest US inflation data showed that prices continued to rise in June, remaining in line with market expectations. The US Consumer Price Index (CPI) increased by 0.3% in June from the previous month and climbed to 2.7% on a yearly basis. Core CPI, which excludes food and energy prices, rose by 0.2% MoM and held steady at 2.9% YoY. The data suggests that inflation remains stable but still above the Federal Reserve's (Fed) 2% target, which means the Fed may wait longer before cutting interest rates.

Looking ahead, traders have trimmed their expectations for a near-term Fed rate cut, with the CME FedWatch Tool now showing the probability of a September cut at around 54%, down from earlier highs of nearly 70%. The market reaction suggests investors are growing more cautious, as the steady inflation print offers little urgency for the Fed to pivot toward easing. This shift in rate expectations has provided renewed support for the US Dollar, particularly against low-yielding currencies like the Swiss Franc.

On the Swiss side, the macroeconomic backdrop remains soft. While inflation rebounded slightly in June, headline CPI rose by just 0.1% following a decline in May and remains well below the Swiss National Bank's (SNB) 2% target. Growth forecasts have also been downgraded, with Switzerland's economy now expected to expand by only 1.3% in 2025. In response to persistently low inflation and a fragile growth outlook, the SNB cut its policy rate to 0% in June and signaled openness to further easing, potentially including FX market intervention to curb excessive Franc strength.

The focus now shifts to the US Producer Price Index (PPI) report scheduled for Wednesday, which could offer fresh insights into inflation trends at the wholesale level. Markets expect a modest monthly increase, in line with the stable CPI print. However, any upside surprise in PPI could reinforce concerns about lingering inflation pressures and further dampen hopes for a near-term Fed rate cut. This would likely support the US Dollar and potentially drive USD/CHF higher. On the other hand, a softer PPI reading may revive dovish expectations and cap the Greenback's recent gains.