- USD/CHF rose as latest US data reduced the risk of further rate cuts from the Federal Reserve.
- Improvements in U.S. Treasury yields are providing support for stronger currencies.
- The Swiss franc’s losses will be limited as tensions in the Middle East rise and safe-haven capital flows into the Swiss franc.
USD/CHF extended gains for a second straight day during Asian trading on Thursday, trading around 0.8660. The U.S. dollar (USD) rose as strong data and economic data raised expectations for a tightening of policy by the Fed. The probability of a 25 basis point rate cut in November is currently 92.1%, according to the CME FedWatch tool, with no rate cuts of more than 50 basis points expected.
The U.S. Dollar Index (DXY), which measures the dollar’s return to its primary currency, advanced for a fifth straight day as U.S. Treasury yields improved after two days of declines. U.S. yields are trading near 103.60, holding near two-month highs, with 2-year and 10-year U.S. Treasury yields at 3.94% and 4.03%, respectively, at the time of writing.
The Swiss franc’s fall may be limited as tensions in the Middle East rise and safe-haven capital flows into the Swiss franc. Israel launched an offensive in Lebanon on Wednesday, including destroying the headquarters of the main city and killing 16 people, including the mayor. It was the biggest attack on government buildings in Lebanon since Israel began its airstrikes, according to Reuters.
Switzerland’s inflation rate fell to a three-year low of 0.8% in September, raising the possibility that the Swiss National Bank (SNB) will cut interest rates by another 25 basis points in December. In September, the Swiss National Bank cut its policy rate by 25 basis points to 1%, its third consecutive rate cut and bringing interest rates to their lowest level since the start of 2023.
Investors are likely to focus on Swiss stock data on Thursday. The focus will then turn to U.S. sales data due later in the North American session. Monthly spending in the U.S. is expected to rise 0.3% in September, up from 0.1% last reading.