The USD/CHF gives ground as the dollar falls amid expectations of Fed rate cuts.

The US dollar is losing strength against the Swiss franc, clearly rejecting the psychological level of 0.8000 during Thursday's session. And it's no wonder - the Federal Reserve seems to have its hands tied! It is practically forced to cut rates at its next meeting on September 17, while the Swiss National Bank (BNS) is fighting against its own expectations of cuts.

The most ironic thing is that the BNS could return to negative territory in its rates, something it abandoned just three years ago. It now finds itself swimming upstream, trying to resist the market forces pushing rates below zero.

Inflation rises, but the Fed continues with its cutting plan

US inflation rose again in August, with the annualized index reaching 2.9% and the monthly rate accelerating to 0.4%. Housing and food prices were the main villains - food prices increased by 0.5% in just one month! Core inflation also rose to 2.9% year-on-year, just within market forecasts.

But look, not even this inflationary spike has been enough to change what we all know will happen. According to CME's FedWatch Tool, traders are already taking for granted three cuts before the end of the year. The 25 basis point cut for next week is almost a done deal, and the markets are calculating nearly a 95% chance that the Fed will also cut on October 29 and December 10.

And the Swiss franc?

The Swiss franc is still considered a safe-haven asset, something that investors buy when the world goes crazy. It's no wonder - Switzerland represents stability, a strong export sector, large central bank reserves, and political neutrality in global conflicts.

The curious thing is that, being a small and open economy, Switzerland depends heavily on the health of its neighbors in the Eurozone. Some models suggest that the correlation between the euro and the franc is over 90%, almost perfect.

Meanwhile, the dollar continues to lose ground against the franc, and all signs point to this trend continuing as the Fed prepares for its big move next week.