USD/CHF holds above 0.8500 as likelihood of significant Fed rate cut declines

• USD/CHF gains ground as recent jobs data diminished the odds of an aggressive rate cut by the Fed in November.
• The CME FedWatch tool suggests a 31.4% chance of a 50 basis point Fed rate cut, down from 49.3% a week ago.
• The Swiss CPI slowed to 0.8% year-on-year in September, below expectations and from August’s reading of 1.1%.

USD/CHF continues its winning streak for the fourth consecutive session, trading around 0.8510 during European hours on Thursday. This upward momentum in the USD/CHF pair could be attributed to the recent strong US jobs data, which decreased the likelihood of the Federal Reserve (Fed) making another aggressive rate cut in November.

ADP’s US employment change report reported an increase of 143,000 jobs in September, exceeding the anticipated 120,000 jobs. In addition, the annual salary increased by 4.7% year-on-year. The total number of jobs added in August was revised upward from 99,000 to 103,000. This report indicates that the labor market is in better condition than was perceived at the beginning of the third quarter.

The CME FedWatch tool indicates that markets are assigning a 65.9% probability to a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point cut is 31.4%, for down from 49.3% a week ago.

The Swiss Franc (CHF) may have received downward pressure following weaker-than-expected inflation data released on Thursday. The Swiss Consumer Price Index slowed to 0.8% year-on-year in September, below market expectations and August’s figure of 1.1%. This is the lowest inflation rate since September 2021. Additionally, the monthly inflation rate fell 0.3%, beating forecasts for a 0.1% decline, after holding steady in August.

The decline of the Swiss Franc (CHF) could be limited due to safe haven flows amid rising tensions in the Middle East. The Israel Broadcasting Authority (IBA) reported that Israel’s security cabinet has resolved to take decisive action in response to the recent Iranian attack. On Tuesday night, Iran launched more than 200 ballistic missiles and drone strikes aimed at Israel.