USD/CHF is nearing 0.8700 with US inflation on the horizon

• USD/CHF is heading towards 0.8700 as safe haven flows to the Swiss franc have eased.
• Investors are divided over the size of the Fed’s rate cuts in September.
• Investors await US PPI and CPI data for July, which will be released at 12:30 GMT and on Wednesday, respectively.

The USD/CHF pair gains as high as 0.8675 in the European session on Tuesday. The Swiss franc asset is strengthening as the appeal of the Swiss franc as a safe-haven asset diminishes due to declining risks of the United States (US) entering a recession.

Fears of a potential US recession faded after upbeat weekly initial jobless claims. The think tank also discussed that non-farm payrolls (NFP) data for July was not as bad as the global stock sell-off suggests.

Market sentiment is currently upbeat, with investors focusing on US consumer price index (CPI) data for July due out on Wednesday. S&P 500 futures posted significant gains in the European session. The US Dollar Index (DXY), which tracks the greenback against six major currencies, is climbing near 103.25.

The US CPI report is expected to show that annual headline and core inflation, which excludes volatile food and energy prices, decelerated by a tenth to 2.9% and 3.2% respectively. Headline and core monthly inflation are estimated to have increased by 0.2%.

Inflation data will provide clues about when and how much the Federal Reserve (Fed) will cut interest rates this year. Financial markets are currently divided over the size of the interest rate cut in September. The CME FedWatch tool shows that the probability of a 50 basis point (bp) rate cut is 49.5%.

Ahead of the US CPI data, investors will focus on the July Producer Price Index (PPI) report due at 12:30 GMT. Annual and core PPI are expected to have decelerated by three-tenths to 2.3% and 2.7% respectively.