The USD/CHF currency pair has extended its gains for the second consecutive day, hovering around 0.8660 during the Asian trading hours on Thursday. The strength of the US Dollar (USD) is attributed to robust labor and inflation data, which have tempered expectations for aggressive easing by the Federal Reserve (Fed). According to the CME FedWatch Tool, there is currently a 92.1% probability of a 25-basis-point rate cut in November, with no expectations for a larger 50-basis-point reduction.
US Dollar Index and Treasury Yields
The US Dollar Index (DXY), which measures the value of the USD against six major peers, continues its winning streak for the fifth consecutive session. The index is buoyed by improved US Treasury yields after two days of losses, trading around 103.60 and maintaining its position near two-month highs. As of the latest data, the 2-year and 10-year yields on US Treasury bonds stand at 3.94% and 4.03%, respectively.
Swiss Franc Dynamics
While the USD strengthens, the downside for the Swiss Franc (CHF) could be limited due to safe-haven flows amid rising geopolitical tensions in the Middle East. On Wednesday, Israel intensified its airstrikes on Lebanon, including a significant attack that destroyed the municipal headquarters of a major town, resulting in the deaths of 16 individuals, including the mayor. This marks the largest assault on an official Lebanese state building since the onset of the Israeli air campaign, according to Reuters.
In addition, Swiss inflation has fallen to 0.8% in September, marking a three-year low. This development raises the probability of another 25-basis-point rate cut by the Swiss National Bank (SNB) in December. In its September meeting, the SNB already reduced its key policy rate by 25 basis points to 1%, marking the third consecutive cut and bringing borrowing costs to their lowest level since early 2023.
Upcoming Economic Data
Traders are set to monitor Swiss Trade Balance data scheduled for release later on Thursday, which may provide insights into the health of the Swiss economy. Attention will also shift to the US Retail Sales data, expected later in the North American session. The forecast anticipates a monthly increase in consumer spending of 0.3% for September, up from a previous reading of 0.1%.
The USD/CHF pair continues to gain ground, supported by a strong US Dollar and bolstered by safe-haven demand amid rising geopolitical tensions. The outlook for the Swiss Franc appears cautious, given the potential for further monetary easing by the Swiss National Bank, while traders remain focused on upcoming economic data that could influence market sentiment in the near term.
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