Swiss Franc Dips Ahead of Key Data Release amid France Debt Concerns
The Swiss Franc (CHF) extended its decline against the US Dollar (USD) on Wednesday, with the USD/CHF pair trading around 0.8330 during Asian hours. This drop comes ahead of the release of Switzerland’s Foreign Currency Reserves data for September. The country’s seasonally-adjusted Unemployment Rate remained steady at 3.1% for the fifth consecutive month in September.
DBS strategists noted that recent softer US inflation and payrolls, combined with France’s sovereign debt concerns, have reinforced demand for the Swiss Franc as a haven. They highlighted that EUR/CHF declined for a third consecutive week as widening French OAT-Bund spreads outweighed the Swiss National Bank’s (SNB) dovish stance. Political and fiscal worries in France are currently dominating the currency’s reaction despite the SNB’s more accommodating policy.
The USD/CHF pair’s appreciation is also supported by a rebound in crude oil prices, driven by persistent Middle East supply risks. This has kept inflationary concerns and rate-hike expectations in focus, bolstering the US Dollar. However, the upside for the Greenback may be limited by last week’s softer US labor market data, which has reduced expectations for further Federal Reserve tightening. The CME FedWatch tool indicates only a 20% probability of a rate hike at the upcoming October meeting.
Federal Reserve official Schmid’s recent speech scored 8/10 on the FXS Speechtracker, slightly above the 7.5/10 historical average, signaling a more hawkish tone. Schmid emphasized that the labor force remains strong, expressed frustration with persistent inflation, and noted that AI is a significant driver of inflation. He also stressed that the Fed still has work to do on short-term rates despite higher long-term yields, reinforcing expectations for elevated policy rates.
The FXS Fed Sentiment Index rose by 0.34 points to 137.91, maintaining a hawkish stance well above the neutral 100 mark. This uptick, aligned with the stronger FXS Speechtracker score, suggests a marginal but clear reinforcement of hawkish Fed expectations, which should support the Dollar against lower-yielding currencies.