Swiss Franc weakens as Fed rate hike fears lift US Dollar

USD/CHF gains for the second successive day, trading around 0.8130 during the Asian hours on Wednesday. The pair appreciates as the US Dollar (USD) advances amid rising bond yields and surging oil prices, which have reignited concerns over persistent inflation and the likelihood of potential interest rate hikes.

Driven by a global bond selloff, the US 10-year Treasury yield surged to 4.80%, reaching its highest level since early 2025. Compounding these inflationary pressures, crude oil prices jumped significantly following escalating hostilities between the United States and Iran, intensifying worries over potential energy flow disruptions from the Middle East.

Meanwhile, recent economic data from the US offers a mixed backdrop for broader market sentiment. July JOLTS job openings fell below market expectations at 7.27 million, while the ISM Manufacturing PMI eased slightly from 55.6 to 54.6 in August. Despite missing forecasts, the PMI remains firmly in expansion territory, pointing to a resilient manufacturing sector. Investors are now turning their attention to the upcoming ADP employment report and Friday's Nonfarm Payrolls to gauge the Federal Reserve's next move on interest rates.

Switzerland's SVME Purchasing Managers' Index (PMI) rebounded sharply to 57.1 in August from July's five-month low of 53.2, marking its highest reading since May. This manufacturing momentum is mirrored in consumer activity, with July Real Retail Sales accelerating 2.3% year-over-year, beating the 1.3% forecast and building on June's revised 1.9% growth rate. Investors are keeping a close watch on upcoming SVME PMI updates later today for further clues on economic momentum.

Brown Brothers Harriman‘s Elias Haddad underscores the impact of Switzerland’s subdued inflation backdrop and the SNBs extended hold at 0.00%, noting that “CHF is the worst performing G10 currency so far this quarter,” as the low-yield environment continues to sap support for the Franc.