USD/CHF drops as US Dollar weakens on government reopening, Fed outlook

• The US Dollar falls sharply as improving risk sentiment pressures the American currency.
• The reopening of the US government boosts investor optimism and accelerates the US Dollar’s decline.
• Expectations of a Federal Reserve rate cut in December are fading, but this offers little support to the US Dollar.

USD/CHF trades lower on Thursday, hovering around 0.7950, down 0.30% at the time of writing. The pair extends its corrective move, pressured by broad weakness in the US Dollar (USD) as risk appetite improves following the reopening of the US federal government.

The announcement that US President Donald Trump signed the funding bill, ending a 43-day standoff, the longest in US history, sparked a wave of risk-on buying across markets. As a result, the US Dollar is losing its defensive appeal, pushing the US Dollar Index (DXY) toward the 99.00 area after trading above 100.00 last week.

Market uncertainty remains elevated regarding the release schedule for US macroeconomic data delayed by the government shutdown. Key indicators such as October’s jobs and inflation reports may not be published, complicating the Federal Reserve’s (Fed) assessment of economic conditions.

On the monetary policy front, expectations for a December rate cut are softening. Fed's Stephen Miran reiterated the need for lower borrowing costs to support a weakening labor market, while Raphael Bostic, President of the Atlanta Fed, warned that easing too early could allow medium-term inflation expectations to drift higher. Futures markets reacted, trimming the chance of a December cut to 54%, down from 64% last week and over 90% a month ago.

In Switzerland, the Swiss Franc (CHF) remains firmly supported. Expectations that the Swiss National Bank (SNB) might move back toward negative rates have faded, with policymakers recently expressing more confidence in an acceleration of inflation in the coming quarters. Meanwhile, bilateral trade relations could soon improve. According to a Bloomberg report this week, the United States (US) and Switzerland may announce a trade agreement within two weeks, potentially reducing US tariffs on Swiss imports to 15%.

All these factors keep USD/CHF under sustained downward pressure, as the structural strength of the Swiss Franc and the renewed appetite for risk continue to weigh on the US Dollar in a still fragile macroeconomic environment.