USD/CHF saw a slight increase on Monday, as the US Dollar (USD) stabilized following last week’s downturn driven by the US Treasury’s plan to ramp up buybacks of longer-term bonds. Meanwhile, attention in the market has returned to the rising tensions between the US and Iran, particularly after the announcement of new sanctions against Tehran. As it stands, the currency pair is trading at approximately 0.8026, reflecting an increase of about 0.20% for the day.
US Treasury Secretary Scott Bessent initiated “Operation Economic Outcast” on Monday, aiming to heighten economic pressure on Iran. This operation broadens the application of secondary sanctions targeting countries and entities that engage in business with Iran. The Treasury imposed sanctions on around 60 individuals, entities, and vessels linked to Iran’s nuclear, missile, cyber, and oil sectors.
In response to the escalated pressure, Iran has issued warnings that this could provoke a broader conflict, with a senior Iranian official stating a potential halt to oil exports through the Strait of Hormuz and other areas in the Persian Gulf.
The geopolitical strains are providing some support for the US Dollar, but the upward potential seems somewhat constrained. The Treasury’s increase in long-term bond buybacks has reignited worries regarding the country’s fiscal health and climbing government debt. On Monday, the US Dollar Index (DXY), which measures the dollar against a basket of six major currencies, is around 99.05, after hitting a three-month low of 98.56 the previous week.
Additionally, weaker employment and inflation statistics for July have lowered expectations for an imminent interest rate hike by the Federal Reserve (Fed), presenting another challenge for the US Dollar.
Looking ahead, market attention will shift to the US Personal Consumption Expenditures (PCE) Price Index report on Wednesday, which might offer new insights into the inflation trajectory and reinforce the likelihood that the Fed will maintain current interest rates in its upcoming monetary policy meeting. Later in the week, Fed Chair Kevin Warsh is scheduled to address attendees at Jackson Hole on Friday.
On the Swiss front, the economic agenda is rather quiet this week. Inflation continues to be low, with annual CPI recorded at 0.4% in July, lingering close to the lower edge of the Swiss National Bank’s (SNB) 0%-2% price stability target. Last week, SNB Governing Board member Petra Tschudin indicated that negative interest rates could be reinstated if necessary to control inflation.
