Overview
US interest rate expectations are heavily influencing gold and USD/CHF movements again, putting increased emphasis on incoming inflation and labour market data, along with gyrations in short-term debt securities, to dictate direction. Recent trends look similar to what was seen in the March quarter this year, pointing to the risk of further US dollar strengthening ahead.
USD/CHF moves
After disconnecting briefly around the turn of the quarter, US interest rate markets once again have a stranglehold on movements in USD/CHF and gold. You can see than in the correlation analysis below looking at the rolling 10-day relationship between both markets with a variety of interest rate and FX variables. USD/CHF is shown on the left, gold on the right.
From top to bottom, we have Fed rate cut expectations out to the end of 2025 in purple, US two-year yields in green, US five-year yields in black, US 10-year yields in red, US 10-year inflation expectations in blue and the US dollar index in yellow.
ooking at the scores above, USD/CHF has been strongly correlated with movements in US interest rates over the past fortnight, be it short or longer-term. While not to the same strength as USD/CHF, the scores for gold indicate it’s typically moved in the opposite direction to US interest rates over the same period.
One way or another, US rates are back in the driving seat.