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USD/CHF was trading around 0.8660 during early European trading on Thursday, hovering around the two-month high of 0.8686 recorded on Wednesday. USD/CHF is likely to appreciate further as the Swiss franc (CHF) faces challenges as expectations grow for another rate cut by the Swiss National Bank (SNB) at its upcoming December meeting.
The Swiss franc may find some support from safe-haven flows amid heightened concerns about conflict in the Middle East. On Wednesday, Israel struck south of Beirut, while U.S. Secretary of State Antony Blinken toured the region, advocating for ceasefires in Gaza and Lebanon.
Separately, Iran-backed Hezbollah stepped up its attacks on Israel, deploying “precision missiles” for the first time and launching new drones targeting Israeli locations. Reuters reported that Hezbollah also claimed to have attacked an Israeli arms factory near Tel Aviv.
The dollar weakened slightly, driven by a slight drop in U.S. Treasury yields. However, downside risks to the dollar will be limited as rising inflation concerns reduce the likelihood of a sharp rate cut by the Federal Reserve in November. According to the CME FedWatch tool, there is an 88.9% chance of a 25 basis point rate cut, with no expectations for a larger 50 basis point cut.
Traders are likely to keep a close eye on Thursday’s release of the S&P Global Purchasing Managers Index (PMI), a leading gauge of private business activity in the U.S. manufacturing and services sectors.
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