Swiss Franc eases as US Dollar stabilizes after last week’s sell-off

The Swiss Franc eased as the US Dollar stabilized after last week's sell-off triggered by the US Treasury's plan to boost longer-term bond purchases. Market focus shifted towards US-Iran tensions after Washington announced a new sanctions campaign against Tehran. On Monday, the USD/CHF pair climbed to around 0.8026, up about 0.20% for the day.

US Treasury Secretary Scott Bessent initiated "Operation Economic Outcast" to intensify economic pressure on Iran, targeting 60 Iran-linked individuals, entities, and vessels related to the country's nuclear, missile, cyber, and oil networks. Iran warned that tougher measures could lead to broader conflict, with a senior official threatening to halt oil exports through the Strait of Hormuz and other Persian Gulf regions.

Geopolitical tensions support the US Dollar, though upside is limited. The US Treasury's bond buyback program revived concerns about the U.S. fiscal outlook and growing government debt. The US Dollar Index (DXY), tracking the Greenback against six major currencies, traded near 99.05 on Monday after falling to a three-month low of 98.56 last week.

Softer U.S. employment and inflation data for July dampened expectations of an imminent Federal Reserve (Fed) interest rate hike, adding a headwind for the US Dollar. The market will now focus on the U.S. Personal Consumption Expenditures (PCE) Price Index on Wednesday, which may offer more insights into inflation expectations and indicate whether the Fed will maintain interest rates at its next meeting.

Later in the week, Fed Chair Kevin Warsh will deliver a speech at Jackson Hole on Friday. In Switzerland, the week ahead is relatively quiet, with inflation remaining mild at 0.4% in July, close to the SNB's 0-2% price-stability range. SNB Governor Petra Tschudin previously suggested negative interest rates could be reintroduced if necessary to keep inflation within that range.

The US Dollar's value is primarily influenced by monetary policy decisions made by the Federal Reserve, which aims to maintain price stability and promote full employment. The Fed employs interest rate adjustments as its primary tool to meet these objectives. In extreme circumstances, the Fed can also increase the money supply through quantitative easing (QE), a last resort measure when traditional rate cuts are insufficient to stimulate the financial system.