Swiss Franc languishes at 16-month lows despite bright KOF leading Indicators data

• USD/CHF hits fresh 16-month highs near 0.8340, unfazed by strong Swiss economic data.
• The KOF Economic Barometer shows a favourable outlook, as its leading index hits six-year highs.
• The US Dollar maintains its bid tone amid high Treasury yields and hopes of further Fed interest rate hikes.

The Swiss Franc (CHF) extends losses for the fifth consecutive day against a firm US Dollar (USD) on Tuesday, unfazed by the unexpected improvement in the KOF leading Indicator report seen earlier in the day. The USD/CHF pair trades at 0.8330, just below the 16-month highs at 0.8339 hit earlier on the day, after rallying nearly 4% since late August.

The Swiss KOF leading Index has improved to 109.1 in September, its strongest reading in six years, following an upwardly revised 107.5 reading in August, and against expectations of a decline to 105.8. The report says that the economic outlook remains favourable, with the manufacturing, services and construction sectors showing particularly positive developments, while foreign demand and financial and insurance services have weakened slightly.

The US Dollar remains unbeatable amid strong data, Fed hiking bets

The US Dollar remains strong, buoyed by a mix of strong macroeconomic data, which has resurfaced the idea of US exceptionality, higher US Treasury yields, and growing hopes that the US Federal Reserve (Fed) will hike interest rates at least once more before year-end.

Fed Governor Lisa Cook endorsed those views on Monday, affirming that she expects “to see continued inflation pressure in coming months, from artificial intelligence and conflict in the Middle East.” More Fed speakers are scheduled on Tuesday, although the highlights of the week will be the US Personal Consumption Expenditures (PCE) Price Index, due on Wednesday, and Friday’s Nonfarm Payrolls report, which will be carefully analysed from a monetary policy perspective.

Strategists at Rabobank observe that speculative positioning in the Dollar has shown little net change, with “USD net longs are largely unchanged as both long and short positions increased by 2,000 positions, respectively.” Looking ahead, market-derived rate expectations remain firmly tilted toward further tightening, as “the OIS curve suggests investors are still positioned for more than three hikes by the end of next year,” says Rabobank in a note.