Swiss Franc weakens as Fed hawkish outlook lifts USD/CHF

USD/CHF extends its gains for the third consecutive day, trading around 0.8210 during Asian hours on Monday. However, the upside of the pair could be limited as the Greenback may face challenges due to a drop in crude oil prices. Lower oil prices help ease inflationary pressures. Energy markets pulled back after US President Donald Trump signaled that further military action against Iran is "highly unlikely," contingent on continued progress regarding Iran's nuclear program and the Strait of Hormuz remaining open. Trump also acknowledged that the unpopular conflict in the Middle East, which had previously driven energy costs higher, played a key role in the Republicans' recent midterm election losses.

The US Dollar (USD) stands to regain its footing on the back of dynamic labor market data and heightened expectations for monetary tightening. According to the CME FedWatch tool, the probability of a 25-basis-point interest rate hike at the December Federal Open Market Committee (FOMC) meeting has surged past 78%.

Fed-hawk-leaning sentiment is strongly underpinned by robust US employment metrics. October Nonfarm Payrolls (NFP) surged by 165,000—substantially outperforming the 65,000 consensus estimate and building on September's revised 60,000 figure—while the Unemployment Rate dipped to 4.1%, beating the 4.2% forecast. Investors and market participants are now turning their focus to Tuesday's Consumer Price Index (CPI) report and Friday's Producer Price Index (PPI) release for definitive cues on the Federal Reserve's upcoming policy path.

The USD/CHF pair may depreciate as the Swiss Franc (CHF) could receive support from increased safe-haven demand after the Democratic sweep raised expectations for tighter regulation of the AI buildout. This outcome could also lead to political gridlock and increase the prospect of fiscal restraint in the US.

USD/CHF downside risks linger as UOB flags scope for recovery

Strategists at UOB Group maintain their cautious medium-term stance on USD/CHF, reiterating that their “update from yesterday (05 Nov, spot at 0.8165) remains valid.” They continue to see scope for further weakness, noting “there is a chance for USD to test 0.8110 before the risk of a recovery increases.” On the topside, UOB emphasises that “a breach of 0.8205 (no change in ‘strong resistance’) would mean that the USD decline from one week ago has run its course,” marking that level as the key threshold that would signal the end of the recent downtrend.