A robust labor market report triggers a USD rally against the CHF as the prospect of another Fed rate hike resurfaces

Two reports emerged from the US economic docket, with the first being the Initial Jobless Claims for the last week, pushing back against the US Federal Reserve’s (Fed) intentions to pause its hiking cycle as the labor market remains tight. Figures came at 228K beneath the 240K forecast, while Continuing Claims, which lagged the current claims week reported, jumped 33K, to 1.754 million, from 1721K.

Recently, Existing Home Sales in June slipped by 3.3%, as shown by the National Association of Realtors. Sales came at 4.16 million, below the 4.3 million in May and beneath the 4.2 million forecasts by analysts.

The USD/CHF soared after the data, as US Treasury bond yields surged, with 2s and 10s soaring ten basis points (bps), each at 4.866%, and 3.860%, respectively. Meanwhile, the US Dollar Index (DXY), which measures the buck’s value vs. six currencies, advances 0.62%, at 100.903, a tailwind for the USD/CHF.

The jump in US bond yields is also a consequence of traders repricing another rate increase by the Fed after the July meeting. Odds for the November meeting increased from 19.8% a week ago to 32.2%, as shown by the CME FedWatch Tool, suggesting traders are switching their point of view regarding Fed’s monetary policy.

On the Switzerland front, the Trade Balance expanded by 4,823 million vs. estimates of 4,031 million but trailed the 5,442 million in May. Exports grew to 24,917 million from 23,879 million in previous readings, whereas the Imports also rose to 20,093M compared to 18,438M marked in May.

That said, the USD/CHF could continue to rally if the US Fed raises rates and keep the door open for another increase, probably in November. That would catch traders off guard, which are already beginning to price in Federal Funds Rate (FFR) cuts by  March 2024. Otherwise, the USD/CHF could hover around current exchange rates, awaiting a fresh catalyst