Franc Under Pressure, Dollar Strengthens
The Swiss franc weakened against the US dollar on Wednesday (July 8th), amid escalating geopolitical tensions in the Middle East. USD/CHF extended its gains for three consecutive days and hovered around 0.8090 in the Asian session. The dollar's strength was supported by safe-haven demand after the United States launched airstrikes against Iran in retaliation for attacks on commercial vessels in the Strait of Hormuz.
Tensions escalated after a Qatari LNG carrier and a Saudi oil tanker were reportedly targeted in attacks in the vital shipping lane. Iran condemned the US airstrikes as blatant aggression and warned of a strong military response. Tehran also reiterated its rejection of US interference in the management and control of the Strait of Hormuz.
Although the US dollar strengthened, its upside potential remains limited as expectations for a Fed interest rate hike have begun to soften. Weaker-than-expected US Nonfarm Payrolls data last week led the market to lower its projection for a total interest rate hike through December to around 26 basis points, from the previous 38 basis points. This means the market is starting to see the possibility that the Fed will be less aggressive in tightening policy.
In Switzerland, the yield on 10-year government bonds rose above 0.34%, following rising global borrowing costs after soaring oil prices and rekindling inflation concerns. However, Swiss domestic inflation actually slowed to 0.5% in June, still within the Swiss National Bank's target. The IMF also urged the SNB to remain flexible, including being ready to tighten policy or cut interest rates again into negative territory if the risk of stagflation increases. (asd)
Source: Newsmaker.id
