USD/CHF eases as Greenback declines amid Fed rate cut expectations

• USD/CHF pared away near-term gains, testing back into recent lows.
• The Fed is still on pace to deliver an interest rate cut next week despite another uptick in CPI inflation.
• The SNB is battling rate cut expectations of its own, with markets weighing odds of negative rates.

USD/CHF chalked in a technical rejection of the 0.8000 handle on Thursday, with the US Dollar (USD) taking a beating across the board. The Federal Reserve (Fed) is functionally locked into an interest rate cut at its upcoming interest rate decision on September 17, while the Swiss National Bank (SNB) is battling rate cut expectations of its own, with markets gearing up for the SNB to pivot back into negative rate territory. The SNB exited its negative rate policy stance just three years ago, and the Swiss central bank is now battling market forces that are pushing rates back below zero.

US CPI rises, but Fed rate cuts still on track

Headline US CPI inflation rose again in August, with the annualized index rising to 2.9% and the monthly number accelerating to 0.4% as front-end inflationary pressure continues to build. Shelter and food prices were the largest drivers of near-term inflationary pressure, with the grocery items index rising 0.5% over a single month. Core CPI inflation, or headline inflation less energy and food prices, rose to 2.9% YoY, landing within median market forecasts.

Despite another rise in key inflation pressure, August's CPI inflation data wasn't enough to derail market expectations for a Fed interest rate cut next week. According to the CME's FedWatch Tool, interest rate futures traders are fully pricing in three rate cuts before the end of the year. A 25-basis-point cut is a foregone conclusion at the Federal Open Market Committee's (FOMC) interest rate decision on September 17, and rate markets are pricing in nearly 95% odds that the Fed will deliver follow-up rate trims on October 29 and December 10.

USD/CHF daily chart