Swiss Franc gains as Fed policy uncertainty drags down US Dollar

USD/CHF remains subdued for the second successive day, trading around 0.8070 during the Asian hours on Thursday. The pair faces challenges as the US Dollar (USD) struggles following the release of Wednesday's Federal Reserve (Fed) Meeting Minutes.

During Kevin Warsh’s debut meeting as FOMC Chairman on June 16-17, policymakers were split: while many participants noted the benchmark rate would likely finish the year unchanged or slightly below its current 3.6% level, an equally vocal contingent argued that rates would need to move higher by year-end.

This geopolitical friction has reinforced expectations that the Fed may lock in higher interest rates for longer to combat stubborn price pressures. According to the CME FedWatch tool, swap traders have raised the probability of a rate hike at the next Fed meeting to over 30%, a sharp jump from less than 20% just last week.

However, the US dollar could see a boost in safe-haven demand as renewed tensions between the US and Iran fuel fears of energy-driven inflation. Iranian Parliament speaker Mohammad Bagher Ghalibaf warned the United States after two days of renewed US strikes, saying that any U.S. military action will prompt retaliation. Ghalibaf emphasized that access to the Strait of Hormuz remains under Iranian control.

The USD/CHF pair is gaining ground, even as the Swiss Franc (CHF) finds support from safe-haven demand driven by rising inflation fears. This comes as the Swiss National Bank (SNB) reiterated its readiness to intervene in the foreign exchange markets 'if necessary' to prevent excessive CHF appreciation and temper imported inflation.