Swiss Franc remains near 16-month lows as rate hike odds lift US Dollar

The Swiss Franc has been trading near its 16-month lows as market expectations of U.S. interest rate hikes have caused the US Dollar to strengthen. On Wednesday, USD/CHF reached its 16-month high of 0.8358 during Asian trading hours. This appreciation is attributed to traders pricing in a 68% chance of a Fed rate hike in October and a 95% likelihood of a 25-basis-point increase in December.

The focus now shifts to the upcoming US Nonfarm Payrolls report on Friday, with economists expecting an addition of 90,000 jobs in September and a stable Unemployment Rate of 4.1%. Switzerland's economic outlook has shown strength, with the Swiss KOF Leading Indicator climbing to 109.1 in September, the highest level in six years.

Market participants will monitor the release of the Swiss ZEW Expectations survey and the Swiss National Bank's (SNB) Quarterly Bulletin. Analysts at Rabobank note that the SNB has maintained its cautious stance, holding the overnight policy rate at 0.0% since the September 24 meeting. The SNB's decision to hold the rate comes amid steady CHF positioning and expectations of more than two SNB rate hikes by mid-next year.

The daily chart shows USD/CHF trading at 0.8350, extending its recovery above both the nine- and 50-period Exponential Moving Averages, indicating strengthening upside momentum. The 14-day Relative Strength Index (RSI) is at 74.21, pushing into overbought territory, suggesting the rally may continue despite positive directional pressure.

The Swiss Franc is considered a safe-haven asset due to Switzerland's stable economy, strong export sector, large central bank reserves, and political neutrality. The SNB meets four times a year to decide on monetary policy, aiming for an annual inflation rate of less than 2%. Macroeconomic data releases in Switzerland impact the valuation of the Swiss Franc, with high economic growth, low unemployment, and high confidence being positive factors.