Swiss Franc Remains Steady Amid Safe-Haven Demand

USD/CHF remains flat after recovering daily losses, trading around 0.8170 during Asian hours on Friday. The pair has pared its daily losses as the US Dollar (USD) gained support amid widespread market caution. Investors are awaiting the upcoming US Nonfarm Payrolls (NFP) report, which is expected to play a critical role in shaping market expectations for the Federal Reserve's (Fed) December policy decision.

However, the upside of the Greenback could be restrained as US bond yields declined. A Democratic sweep dragged oil prices lower on speculation that the election would speed an end to the Iran war, which also prompted traders to trim bets on US Federal Reserve (Fed) rate hikes. Markets are currently pricing in nearly a 70.9% probability that the Fed will raise rates in December, according to CME’s FedWatch tool. Furthermore, the Democrats' victory has raised expectations of political gridlock in Washington, which could constrain government spending and ultimately lead to slower economic growth.

The Swiss Franc (CHF) strengthened as the Democratic sweep raised expectations for tighter regulation of the AI buildout and lifted safe-haven demand. This outcome could also lead to political gridlock and increase the prospect of fiscal restraint in the US. However, higher safe-haven demand could prompt traders to unwind franc-funded carry trades, which had previously benefited from the widening interest rate differential with the US and weighed heavily on the CHF. Swiss borrowing costs have remained at the world's lowest for over a year, making the franc an attractive funding currency for higher-yielding investments.

Looking ahead, the Swiss National Bank (SNB) is not expected to raise rates in the near term. This stance is further supported by Chair Schlegel’s remarks, which reinforced that Swiss inflationary pressures remain contained. While Swiss inflation rose in October due to higher energy costs and a weaker franc, the currency's subsequent appreciation could help ease imported cost pressures.

Analysts at UOB Group maintain a cautious, negative stance on USD/CHF over the one-to-three-week horizon, noting that the pair has yet to fully confirm a deeper downside extension. They recall that, “tracking our negative USD view from late last week, we highlighted yesterday that USD ‘must break and hold below 0.8140 before further declines can be expected.’ We added, ‘the next level to watch below 0.8140 is 0.8110.’”

While USD/CHF did “break below 0.8140,” it subsequently “rebounded to close at 0.8168 (-0.46%),” meaning the close failed to validate a clean break of the level. Even so, UOB points out that “given the sharp decline to 0.8124, there is a chance for USD to test 0.8110 before the risk of a recovery increases.” On the topside, they stress that “a breach of 0.8205 (‘strong resistance’ was at 0.8220 yesterday) would mean that 0.8110 is not coming into view,” marking 0.8205 as the key barrier that would negate the immediate downside scenario.