FX Daily: Trive Bullish on USD/CHF
The USD remains supported as market expectations for a November rate cut have faded, influenced by ongoing geopolitical risks and the approaching US election. In contrast, unless geopolitical tensions escalate, CHF is expected to stay weak during rallies due to the low domestic inflation environment and a dovish stance from the SNB.
SD: The king is return?
The USD continues its rally into October, largely driven by uncertainty surrounding the upcoming US election and the potential return of Donald Trump to the White House. Market participants are adjusting their USD exposure as a 'Trump hedge'. They are focusing on two possible outcomes: a Kamala Harris presidency with a divided US Congress, which may result in a dysfunctional government but leave fiscal policy and the economic outlook largely unchanged, or a Trump presidency with a ‘red wave’ in Congress, which could lead to additional fiscal spending, higher inflation, and a less dovish Federal Reserve stance.
In the FX markets, both scenarios tend to favor USD strength. A Harris victory might initially cause the USD to weaken as Trump hedges unwind, but a soft US economic landing could eventually increase demand for USD assets. A Trump victory, on the other hand, is expected to strengthen the USD due to the likelihood of persistent inflation, a less hawkish Fed, and increased macro and geopolitical risks. Notably, Asian currencies were hit hardest by the USD rally following Trump’s 2016 win.
Beyond the election, domestic factors and geopolitical risks also support the USD. US consumer spending remains strong, with retail sales (excluding auto and gas) rising by 0.7% m/m in September, up from 0.2% in August. This robust retail performance points to Q3 GDP growth, with consumption likely growing over 3% annualized. Additionally, uncertainties in the Middle East pose a geopolitical risk, which could enhance the USD’s safe-haven appeal ahead of the election. In summary, both internal and external factors continue to support a strong USD in the near term. Looking ahead, the US calendar is light this week, with October's preliminary PMI data being the key focus. In the absence of major data surprises, investors will closely follow election polls. Further evidence of Trump’s rise in the polls could give the USD an additional boost. Markets will also monitor speeches by Fed officials.
CHF: Status quo
This week, the Swiss Franc faced slight declines against a generally strengthening U.S. dollar, amidst significant global economic updates and geopolitical changes. Although there were no major domestic events impacting the CHF, its movement was significantly shaped by international risk sentiment and monetary policy adjustments in major economies. The Swiss Franc’s performance this week was aligned with broader G10 currency trends, heavily influenced by developments in U.S. economic projections and Federal Reserve policy speculations.
The Franc also reacted to wider market dynamics, including increasing geopolitical tensions and important policy statements from central banks in Europe and the U.S. These factors typically affect the Swiss Franc due to its status as a safe-haven currency. Although specific Swiss economic indicators were not a focus this week, the Franc was affected by economic data from key trading partners, especially the U.S. American retail sales figures and jobless claims lent some support to the dollar, influencing its strength against a range of currencies, including the Franc.
Looking forward, the upcoming week does not feature any major economic releases directly affecting the Swiss Franc, suggesting that external factors will continue to be the main drivers of CHF movements. With no significant domestic data expected, global market sentiments, geopolitical developments, and economic data from significant trading partners will likely drive the Swiss Franc. In a more positive risk environment, CHF shorts would be an attractive choice, while in a risk-off scenario, short-term CHF buys would be a safe bet. The CHF is expected to remain weak barring any further geopolitical tensions.
USD/CHF 4H Chart
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