A strong September US jobs report underscores the resilience of the US economy, likely supporting the USD leading up to the upcoming US election. Meanwhile, further rate cuts from the SNB are anticipated due to low inflation, as the SNB reiterated in its September meeting that a strong CHF is unwelcome. Therefore, unless geopolitical risks escalate, the CHF is expected to remain under pressure.

USD: Strong Job Reports

Fed Chair Powell's latest comments indicate that the Fed is not in a hurry to cut rates. The recent 50bps cut reflects confidence in maintaining labor market strength while adjusting policy. He stressed that any future rate cuts would be gradual, data-dependent, and could include two more 25bps cuts by year-end. Following his remarks, markets have dialed back expectations for a 50bps cut in November. The September jobs report, which beat expectations came in at 254K jobs compared to August's 159K further solidified this view. Unemployment also fell to 4.1%, the lowest since March, reinforcing the idea that a 50bps cut in November is unlikely, even if October's report disappoints.

Additionally, geopolitical tensions in the Middle East are fueling risk aversion, enhancing the safe-haven appeal of the USD. Growing uncertainty around the upcoming U.S. presidential election could further support the USD, reviving the so-called 'Trump trade.' Looking ahead, markets will focus on the September CPI report. September CPI is expected to rise +0.1% M/M in September, down from +0.2%, while core CPI may ease to +0.2% from +0.3%. As the Fed shifts its focus to the labor market rather than inflation, any inflation uptick is unlikely to alter their outlook for further cuts. Overall, domestic developments and ongoing Middle East tensions are likely to support the USD for now.

CHF: Further cut is expected

The latest Swiss inflation data did little to alter the SNB's dovish stance, with the headline CPI falling more than expected to a new cycle low of 0.8% y/y in September. Most of the cooling came from lower energy prices, which does not necessarily undermine expectations of inflation settling near 0.5% next year. The SNB has already hinted at the possibility of further rate cuts. These lower rates, relative to other currencies, could eventually restore CHF's appeal as a funding currency, but only after key uncertainties, such as geopolitics, US elections, and the global soft landing, subside.

Additionally, rising tensions in the Middle East have added upward pressure on CHF, with Chairman Schlegel reiterating the SNB's commitment to curbing excessive appreciation. Consequently, any significant strengthening of CHF is not welcomed by the SNB, increasing the likelihood of intervention to control its strength.

USD/CHF 4H Chart

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