Key Moments
- The Swiss Franc recovers after three sessions of losses, with USD/CHF easing toward 0.8136 from a yearly peak near 0.8152.
- Heightened concerns over a prolonged US-Iran conflict support higher oil prices and cloud the Federal Reserve’s policy outlook.
- The Federal Reserve is expected to keep interest rates unchanged at its upcoming policy meeting.
CHF Strengthens as USD Retreats
The Swiss Franc (CHF) is edging higher against the US Dollar (USD) after three consecutive days of weakness, as the USD/CHF pair retreats on Thursday. The pair is trading close to 0.8136, backing away from its recent advance that stalled just below the yearly high around 0.8152.
Modest buying interest in CHF is emerging as the US Dollar softens, even in the face of mounting worries about a drawn-out conflict between the United States and Iran. At the time of writing, the US Dollar Index (DXY) – which measures the currency against a basket of six major peers – is down 0.13% near the 101.00 level.
US Dollar Performance Against Major Currencies
The following table shows the intraday percentage moves of the US Dollar against key major currencies. The US Dollar is weakest versus the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.10% | -0.05% | -0.15% | -0.26% | 0.00% | -0.10% | |
| EUR | 0.12% | 0.03% | 0.09% | -0.04% | -0.14% | 0.14% | 0.02% | |
| GBP | 0.10% | -0.03% | 0.04% | -0.08% | -0.17% | 0.11% | -0.01% | |
| JPY | 0.05% | -0.09% | -0.04% | -0.11% | -0.22% | 0.05% | -0.06% | |
| CAD | 0.15% | 0.04% | 0.08% | 0.11% | -0.12% | 0.16% | 0.04% | |
| AUD | 0.26% | 0.14% | 0.17% | 0.22% | 0.12% | 0.28% | 0.18% | |
| NZD | -0.00% | -0.14% | -0.11% | -0.05% | -0.16% | -0.28% | -0.13% | |
| CHF | 0.10% | -0.02% | 0.01% | 0.06% | -0.04% | -0.18% | 0.13% |
In this heat map, the base currency is listed vertically on the left and the quote currency horizontally across the top. For instance, choosing the US Dollar as the base currency on the left and moving across to the Japanese Yen cell shows the percentage change for USD (base)/JPY (quote).
Geopolitical Tensions, Oil, and Fed Uncertainty
Oil prices continue to climb amid intensifying concerns over global energy supplies linked to the crisis in the Middle East. This backdrop is adding another layer of uncertainty to the Federal Reserve’s future policy path, even as inflation pressures in the United States eased in June.
During the Asian trading hours, US Central Command (CENTCOM) stated via a post on X that it had concluded the 12th round of strikes targeting Iran.
Earlier, Iran cautioned that the conflict could widen if the United States proceeds with attacks on Iranian infrastructure. “Our defence doctrine is clear: eye for an eye. Any aggression against Iran, including our infrastructure, will compel a powerful and decisive response,” Iran’s Foreign Minister Abbas Araghchi said. The comment followed a post from US President Donald Trump on Wednesday, in which he said that the United States will destroy one bridge or power plant of Iran if Iran bombs a ship passing through the Strait of Hormuz.
Focus Turns to Upcoming Federal Reserve Decision
Looking ahead, the next key catalyst for the US Dollar will be the Federal Reserve’s monetary policy decision expected next week. Market participants anticipate that the central bank will maintain its current interest rate settings.
Background on the US Dollar and Federal Reserve Policy
The US Dollar (USD) is the official currency of the United States and also serves as the de facto currency in a number of other economies, circulating alongside domestic currencies. It is the most actively traded currency globally, representing over 88% of worldwide foreign exchange turnover, or an average of $6.6 trillion in daily transactions, according to data from 2022. Following the Second World War, it replaced the British Pound as the primary global reserve currency. For a significant part of its history, the US Dollar was linked to gold, until the Bretton Woods Agreement in 1971 ended the Gold Standard.
Monetary policy set by the Federal Reserve (Fed) is the dominant driver of the US Dollar’s value. The Fed pursues two main objectives: maintaining price stability by controlling inflation and promoting maximum employment. Its primary tool is the adjustment of interest rates. When inflation rises above the Fed’s 2% target, the central bank typically raises rates, which tends to support the US Dollar. Conversely, when inflation is below target or unemployment is elevated, the Fed may reduce interest rates, generally putting downward pressure on the currency.
In more extreme conditions, the Fed can expand the supply of Dollars and implement quantitative easing (QE). This measure is designed to increase the flow of credit in a stressed financial system when traditional rate cuts are insufficient, such as when banks are reluctant to lend to one another due to counterparty risk. QE was deployed during the 2008 Great Financial Crisis, involving the creation of additional Dollars to purchase US government bonds primarily from financial institutions. This policy usually weighs on the US Dollar.
Quantitative tightening (QT) is the opposite approach. Under QT, the Federal Reserve halts new bond purchases and allows maturing securities to roll off its balance sheet without reinvestment. This process tends to be supportive of the US Dollar.
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