Swiss Franc loses ground as traders turn to US employment data

• The Swiss Franc weakens as the US Dollar finds its footing after the election-driven sell-off.
• Traders look to US Jobless Claims and Friday’s NFP report for clues on the Fed’s next move.
• The SNB’s 0% policy rate leaves the Franc at a yield disadvantage against major peers.

The Swiss Franc (CHF) gives up earlier gains on Thursday as the US Dollar (USD) shows signs of stabilising following US midterm election volatility, helping USD/CHF rebound. At the time of writing, the pair trades around 0.8176, up 0.10% on the day, after recovering from an intraday low of 0.8135.

The US Dollar fell to five-week lows on Wednesday after Democrats won control of both houses of Congress, raising the prospect of political gridlock that could limit new tax cuts and spending packages. The result also fuelled expectations of greater pressure on US President Donald Trump to end the US-Iran war, triggering a sharp decline in Oil prices and offering some relief from inflation concerns.

However, as the post-election dust settles, the US Dollar finds some footing as traders turn their attention back to the Federal Reserve’s (Fed) hawkish policy outlook, which provides underlying support for the Greenback. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.60, recovering from an intraday low of 101.20.

Despite the decline, energy prices remain well above pre-war levels, complicating the Fed’s efforts to bring inflation sustainably back to its 2% target. With inflation still above target and economic growth holding up, traders expect the Fed could deliver another rate hike in December, with the CME FedWatch Tool placing the odds at around 79%.

Attention now turns to upcoming US employment data for fresh clues on the Fed’s policy outlook, with weekly Initial Jobless Claims due on Thursday and Nonfarm Payrolls (NFP) on Friday.

On the Swiss side, the Franc faces headwinds from wide interest rate differentials with other major economies, as the Swiss National Bank’s (SNB) 0% policy rate leaves the currency at a yield disadvantage.

Although recent data show inflation picking up, the bar for a rate hike remains high as it stays within the SNB’s price stability range. Speaking on Thursday, SNB Chairman Martin Schlegel said the central bank had “not yet seen any significant second-round effects” and “would intervene if price stability were at risk.”