The USD/CHF pair experiences depreciation as the US Dollar weakens in the context of enhanced risk-on sentiment. UOB Group strategists observe robust momentum; however, they assert that it is premature to validate a USD/CHF breach above 0.8300. Fed’s Musalem cautions that inflation may remain elevated, exceeding the 2% threshold, unless there are earlier and incremental adjustments to interest rates. USD/CHF experiences a decline for the fourth consecutive day, trading near 0.8200 during the Asian session on Tuesday. The pair depreciates as the US Dollar declines on increased risk-on sentiment due to trade and diplomatic prospects: traders are closely monitoring an upcoming US-China summit for signs of improving relations between the world’s two largest economies. Additionally, hopes for a diplomatic breakthrough in the Middle East have enhanced investor sentiment following news that Iranian President Masoud Pezeshkian will lead a delegation at the UN General Assembly, alongside remarks from US President Donald Trump suggesting he would likely be amenable to a side meeting. Strategists maintain a constructive 1–3 week outlook on USD/CHF, having “turned positive on USD almost two weeks ago.”
They note that, as of September 17, with spot around 0.8250, “while momentum remains strong, it was too early to tell whether it was sufficient for USD to break above 0.8300,” and emphasize that this assessment “remains unchanged.” In their view, “only a breach of 0.8185 (no change in ‘strong support’ level) would indicate that 0.8300 is not coming into view.” However, the Greenback may regain ground due to the persistent hawkish sentiment surrounding the Federal Reserve’s policy stance. The Fed’s Musalem conveys a notably hawkish stance, achieving an 8/10 on the FXS Speechtracker, which exceeds the historical average of 7.4/10. This indicates a heightened tightening bias compared to the established baseline. Musalem cautions that in the absence of additional policy restraint, inflation is expected to stay significantly above the 2% target even 18 months from now. This assessment underscores widespread commodity shocks beyond oil, persistently high underlying inflation near 3%, and business pricing strategies that remain aligned closer to 3%. These factors collectively support a preference for earlier and incremental rate increases, even though the labour market is considered to be near full employment and not the primary driver of price pressures.
The FXS Fed Sentiment Index has increased by 0.42 points to 149.96, indicating that Fed rhetoric continues to reside firmly in hawkish territory, significantly surpassing the neutral threshold of 100. The combination of a higher-than-baseline FXS Speechtracker score and an index level near 150 indicates a policy stance that remains conducive to further rate hikes, a context generally favourable for the Dollar in comparison to lower-yielding counterparts. Fed’s Goolsbee delivered a relatively more impactful speech, with an FXS Speechtracker score of 7.4 versus a historical average of 6.4, underscoring heightened market relevance. The emphasis on being “optimistic” about returning to 2% inflation only if demand does not overheat, alongside the admission that the Fed is still parsing supply versus demand drivers, signals a conditional and data-dependent stance that leans cautiously hawkish.
By emphasising that robust demand, energy prices, tariffs, and various supply shocks are all contributing to inflation, and that alleviation of supply-side pressures is essential to re-establish a “credible path” to 2%, the statements underscore the likelihood that policy may need to remain restrictive for an extended period, creating a favourable environment for the Dollar. The FXS Fed Sentiment Index decreased by 1.07 points to 149.54, reflecting a slight reduction in perceived hawkishness while still remaining well above the neutral threshold of 100. This configuration indicates that, despite a minor softening in tone, the Fed is still perceived as functioning within a distinctly hawkish framework. The stronger-than-baseline FXS Speechtracker score implies that markets will persist in pricing a vigilant approach to inflation, which has ramifications for the Dollar’s resilience against the Euro and Yen.
