USD/CHF struggles near 0.8650 as Middle East tensions boost safe-haven demand

USD/CHF trades with mild negative bias around 0.8655 in Friday’s early European session. 

Stronger US Retail Sales reinforce bets that the Fed will pursue modest rate cuts next year, which might support the USD. 

Any signs of escalating Middle East geopolitical tensions might boost the CHF and cap the pair’s upside. 

The USD/CHF pair trades with mild losses near 0.8655 during the early European session on Friday. The increasing bets that the US Federal Reserve (Fed) would cut rates less aggressively might cap the downside for the pair in the near term. Traders will take more cues from the US housing data and Fedspeak later on Friday. 

Rising demand for the USD in the backdrop of waning expectations of outsized Fed rate cuts and encouraging US economic data might support the pair. The US Census Bureau revealed on Thursday that US Retail Sales climbed by 0.4% MoM in September versus a 0.1% rise in August, above the market consensus of 0.3%. Additionally, the US Initial Jobless Claims for the week ending October 11 increased to 241,000. The figure came in below the consensus and the previous week's of 260,000 (revised from 258,000).

Meanwhile, the US Dollar Index (DXY), which measures the greenback against six major rivals, currently trades near the highest level since August 2 around 103.65. 

Goldman Sachs analysts said on Wednesday that they expect the Fed to cut consecutive 25 basis points (bps) from November 2024 through June 2025 as fears of a potential US recession ease, per the Economic Times. According to the CME Fed Watch Tool, money markets are now pricing a 90.3% probability of a 25bps rate reduction next month.