USD/CHF rises above 0.8450 despite improved Swiss Real Retail Sales

• USD/CHF advances due to the waning likelihood of more bumper Fed rate cuts.
• CME FedWatch Tool indicates a 38.2% probability of a 50 basis point rate hike, down from 53.3% the previous day.
• Swiss Real Retail Sales increased by 3.2% YoY, marking the strongest growth since February 2022.

USD/CHF extends its gains for the second successive day, trading around 0.8470 during the early European hours on Tuesday. This upside of the USD/CHF pair is attributed to the latest speech from the Federal Reserve (Fed) Chairman Jerome Powell.

Fed Chair Powell said the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Fed Chair Powell added that the recent 50 basis point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.

The CME FedWatch Tool indicates that markets are assigning a 61.8% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50 basis point is 38.2%, down from 53.3% a day ago.

Switzerland's economic indicators have been showing positive momentum recently. In August, Real Retail Sales rose by 3.2% year-on-year, surpassing the expected 2.6% increase. This is the strongest growth since February 2022 and reflects an upwardly revised gain of 2.9% in July. The boost in retail sales highlights increasing consumer spending, which is a vital driver for the economy.

On Monday, the KOF Leading Indicator for September also pointed to a brighter economic outlook, with a reading of 105.5, up from 105.0 in August. This exceeded market expectations of 102.0, signaling a continuation of the recovery seen in recent months. The steady improvement in this indicator, suggests that Switzerland's economy is on a positive trajectory, supported by both consumer activity and broader economic factors.

In September, the Swiss National Bank (SNB) reduced its key interest rate by 25 basis points (bps) for the third consecutive time. The move came as part of the SNB's ongoing efforts to maintain price stability and mitigate the impact of the strong Swiss Franc (CHF), which has posed challenges for exporters.

The SNB also signaled its readiness to further cut interest rates if needed, indicating a proactive approach to ensuring that the economy remains on track. By keeping borrowing costs lower, the SNB aims to encourage spending and investment, while also managing the exchange rate to protect the competitiveness of Swiss goods and services.