Swiss Franc erodes part of Wednesday's gains to one-week top amid reviving USD demand

• USD/CHF attracts fresh buyers as escalating US-Iran tensions and Fed hike bets support the USD.
• Supply disruption worries fuel inflation fears, backing the case for further tightening by the Fed.
• Traders now look forward to crucial US macroeconomic releases for some meaningful impetus.

The USD/CHF pair regains positive traction on Thursday, rebounding from a one-week low and stalling its retracement slide from over a one-year high – levels just above the 0.8200 mark. Spot prices climb back above mid-0.8100s during the Asian session amid the emergence of fresh US Dollar (USD) buying.

Despite the lack of fresh hawkish signals from the US Federal Reserve (Fed), traders are still pricing in a greater chance of at least one rate hike by the end of this year amid concerns about energy-driven inflation due to volatile oil prices. Apart from this, a further escalation of tensions between the US and Iran helps revive demand for the safe-haven Greenback, which, in turn, is seen as a key factor acting as a tailwind for the USD/CHF pair.

In the latest developments, the US military launched strikes against Iran in response to surprise Iranian missile attacks on its forces based in the Middle East on Tuesday. This comes on top of joint US-Saudi strikes against Iran-aligned terrorists in Iraq and raises the risk of a broader regional conflict. Moreover, reports suggest that Yemen’s Iran-backed Houthis are considering imposing fees on commercial ships sailing through the southern Red Sea.

Adding to this, the US-Iran standoff over the Strait of Hormuz continues to fuel worries about significant disruptions to global energy supplies, which led to the overnight sharp rise in crude oil prices. Investors seem convinced that elevated energy prices would rekindle inflationary pressures and force the US central bank to adopt a more hawkish stance. This, in turn, favors USD bulls and backs the case for a further intraday appreciation for the USD/CHF pair.

According to TD Securities, the “return of Iranian-US strikes after a multi-day pause, along with continued Houthi risks for Saudi energy infrastructure, are keeping flows in both the Strait of Hormuz and Bab el-Mandeb heavily constrained.” Strategists at the bank argue that these disruptions are contributing to “reduced flows and global tightening of the energy market,” which they see as “supportive of further upside in crude oil.”

Traders now look forward to Thursday's US economic docket – highlighting the release of the Advance Q2 GDP report, along with the Personal Consumption Expenditures (PCE) Price Index. The crucial data will influence expectations about the Fed's future policy path and drive the USD. Apart from this, further developments surrounding the Middle East crisis should infuse volatility in financial markets and provide some meaningful impetus to the USD/CHF pair.