Swiss Franc nears monthly lows as investors brace for US CPI data

• USD/CHF rallies above 0.8150, on track for a nearly 0.7% appreciation this week.
• Higher yields and rising bets on Fed rate hikes are supporting the US Dollar.
• US CPI data, due later in the day, will be carefully analysed for further insight about the outcome of next week's Fed decision.

The Swiss Franc extends losses for the sixth consecutive day against the US Dollar on Friday, nearing one-and-a-half-month lows at the mid-0.8100s. The USD/CHF pair has rallied nearly 0.7% in the last two days as US data fed into Federal Reserve (Fed) rate hikes, boosting the monetary policy divergence with the Swiss National Bank (SNB) and with surging global yields dampening risk appetite.

US data released on Thursday revealed that the Producer Price Index (PPI) accelerated to a 5.4% year-on-year (Y-o-Y) rate in August, from 4.8% in July, while the Core PPI rose to 4.6% Y-o-Y from 4.3% in the previous month. These figures prompted investors to raise their bets on a quarter-point Fed hike next week to a nearly 70% chance, from below 60% last week, according to figures from the CME’s FedWatch Tool.

The focus on Friday is on the US Consumer Price Index (CPI), the latest major macroeconomic release ahead of next week's Federal Open Market Committee (FOMC) meeting. Consumer inflation is expected to show a more moderate uptrend than Thursday's PPI, with yearly inflation accelerating 0.4% in August from July's 0.1%, but with the yearly rate steady at 3.4%, well above the Fed's 2% target.

Dollar tracks back-end yields as modest Treasury buybacks support correlation

Beyond that, ING strategist Francesco Pesole observes that the Dollar is “tentatively re-establishing a positive correlation with long-end yields,” a move they link to the “smaller-than-expected $6bn Treasury buyback announcement, which ultimately translated into an even smaller $5.19bn operation yesterday.” ING experts argue that US Treasury Secretary Scott Bessent’s apparent “reluctance to pick a fight with the bond market through oversized intervention remains a necessary condition for that positive USD-back-end rates correlation to regain its footing.”

Regarding the US CPI reading, Pesole sees USD risks skewed to the upside: “Oil may prove the deciding factor, having rallied around 15% since then.” Against this background, “a softer CPI print could weigh on the dollar,” says Pesole, who warns that it “may not be enough to push September hike pricing below 50%, a level we suspect would be sufficient to bring any unconvinced FOMC members on board.”

In Switzerland, the calendar was thin this week, but last week's releases showed strong retail consumption and consumer inflation levels and an upbeat Gross Domestic Product (GDP) growth in im the second quarter. These figures, however, do not alter the view that the SNB will keep interest rates at 0% this year and well into the next, which keeps the Swiss Frank on the defensive against most of its main peers.