Swiss Franc gains as easing risk aversion weighs on US Dollar

The Swiss Franc (CHF) strengthened on Wednesday as easing risk aversion impacted the US Dollar (USD). Trading around 0.8080 during Asian hours, the pair experienced a second consecutive day of losses. The decline in USD/CHF was attributed to the US Dollar losing ground as demand for safe-haven assets diminished due to a potential agreement to reopen the Strait of Hormuz.

According to Axios, the United States, Iran, and Oman made progress towards an interim deal to restore the Strait of Hormuz, which is a critical chokepoint for nearly 20% of global energy supply. Despite the expected announcement on Wednesday, the US Dollar could find minor support from a slight recovery in the benchmark 10-year US Treasury yield, which had initially fallen to 4.61% on Tuesday.

This drop was driven by declining energy prices, easing inflation concerns, and the Federal Reserve's (Fed) cautious tone regarding tighter monetary policy. Fed Governor Michelle Bowman conveyed a more hawkish stance than usual, but emphasized that further tightening was necessary to bring inflation back to the 2% target. Analysts at Brown Brothers Harriman noted that Swiss price pressures remained subdued, with July inflation aligning with expectations.

The persistently low inflation and the SNB's cautious approach continued to weigh on the Swiss Franc, which has been the weakest G10 currency this quarter. The Swiss Franc, being a safe-haven asset, tends to benefit during market stress, bolstering its value against riskier currencies.