USD/CHF rebounds from a five-month low, consolidates near 0.8570

• USD/CHF dropped to a five-month low at 0.8557 on heightened speculation of the dovish Fed outlook.
• Subdued US GDP data increased the chances of the Fed’s rate cuts in early 2024.
• Middle East conflict could give rise to the demand for the safe-haven Swiss Franc.

USD/CHF attempts to rebound from a five-month low at 0.8557, trading around 0.8570 during the Asian hours on Friday. The US Dollar (USD) faces downward pressure on softer economic data from the United States (US) released on Thursday, coupled with the heightened expectations of the Federal Reserve’s (Fed) dovish stance on rate cuts in the first quarter of 2024.

The subdued US data is adding weight to speculations of potential easing by the Fed. The US Bureau of Economic Analysis (BEA) showed that Gross Domestic Product Annualized (GDP) eased to 4.9% against the expected consistency of 5.2%. Meanwhile, Core Personal Consumption Expenditures (QoQ) reduced to a growth of 2.0% versus the previous 2.3% growth.

However, Initial Jobless Claims for the week ending on December 15 were 205K, slightly below the expected 215K. Investors await Core Personal Consumption Expenditures – Price Index data, and Michigan Consumer Sentiment Index to gain more cues on the US economic scenario.

However, there’s a nuanced perspective from Philadelphia Fed Bank President Patrick Harker. While Harker acknowledged that rate cuts will take time, he also expressed openness to the possibility of lowering interest rates. Harker highlights the challenges faced by businesses in managing higher interest obligations as a key factor that might prompt interest rate cuts next year.

The persistent disruptions in the Suez Canal waterway, triggered by Houthi attacks on ships in the Red Sea, are fueling a risk-averse sentiment. This, in turn, appears to be driving an increased demand for the safe-haven Swiss Franc (CHF). The decision of major shipping companies, including Germany’s Hapag-Lloyd and Hong Kong’s OOCL, to steer clear of the Red Sea waterway, following the lead of British Petroleum, underscores the growing concerns about maritime security in the region.

The Quarterly Bulletin from the Swiss National Bank (SNB) released on Wednesday signals a proactive approach by the bank in managing currency dynamics. The SNB expressed its readiness to be active in the foreign exchange market as necessary, indicating a stance geared towards supporting the Swiss Franc (CHF).