The Swiss Franc (CHF) weakened on Friday as the US dollar (USD) outperformed other major currencies, buoyed by positive labor market data from the U.S. Currently, USD/CHF is around 0.7955, marking a two-month high.
In May, U.S. nonfarm payrolls increased by 172,000, significantly surpassing market expectations. The April employment figure was also revised upwards from 115,000 to 179,000, while the unemployment rate held steady at 4.3%.
This data indicates that the labor market in the U.S. is picking up steam after a slowdown last year, which has prompted the Federal Reserve to implement its third consecutive interest rate cut aimed at managing risks.
As the labor market shows signs of stabilization, the Fed can turn its attention more towards inflation, which is still elevated.
On another note, an increase in oil prices tied to supply disruptions in the Strait of Hormuz has intensified inflation since the onset of the US-Iran conflict in late February, moving it further from the Fed’s 2% target.
This situation has led to growing speculation that the Fed might keep rates steady in the near future or even consider an increase if inflation risks escalate.
The likelihood of a rate hike during the October meeting has jumped from 30% to 40% following the NFP data, according to the CME FedWatch tool.
A more hawkish outlook is also putting upward pressure on the dollar and Treasury yields. The US Dollar Index (DXY), which assesses the dollar’s strength against a mix of six major currencies, is edging towards the 100.00 mark, a level it hasn’t reached since April 7th.
In Switzerland, recent inflation data released on Thursday were lower than anticipated and remain within the Swiss National Bank’s (SNB) target range of 0-2%.
A report from Brown Brothers Harriman (BBH) suggested that the SNB can maintain a 0.00% interest rate for a while, with expectations of a 25 basis point increase to 0.25% over the next year.
