USD/CHF faces barricades around 0.9980 amid subdued DXY, Fed policy grabs attention

• USD/CHF has faced hurdles while attempting to cross the 0.9980 hurdle amid a higher risk appetite.
• The Fed is highly expected to announce a fourth consecutive 75 bps rate hike.
• Swiss Real Retail Sales data is seen higher at 3.3% vs. the prior release of 3.0%.

The USD/CHF pair has sensed selling pressure after attempting to cross the immediate hurdle of 0.9980 in the early Tokyo session. The asset has faced hurdles as the US dollar index (DXY) has turned subdued amid the risk-on market tone. Also, the 10-year US Treasury yields are holding above the critical support of 4%.

Gains are expected to remain restricted as odds for a 75 basis points (bps) rate hike by the Federal Reserve (Fed) have trimmed after a slowdown in consumer spending. As per the CME FedWatch tool, the chances for a 75 bps rate hike have trimmed to 80.3% after remaining constantly above 90% before the release of the third quarter CY2022 Gross Domestic Product (GDP) report.

A decline in consumer spending expansion in the third quarter to 1.4% against the prior release of 2.0% has accelerated the odds of exhaustion in the inflationary pressures. As demand pressures are slowing down, price growth for goods and services will face severe pressure.

Meanwhile, investment banking firm Goldman Sachs still vouch for a 75 bps rate hike this week. A report from Goldman Sachs cites that the US central bank could go beyond its desired terminal rate of 4.75% to 5%. The road to a 5% terminal rate will go through the phases of 75 bps this week, 50 bps in December, and 25 bps in February and March.

On the Swiss franc front, investors are awaiting the release of the Real Retail Sales data for September. The annual economic data is seen higher at 3.3% vs. the prior release of 3.0%. It is worth noting that the retail sales data is not contaminated with the inflation rate, being real not nominal, which could strengthen the Swiss franc bulls against the greenback.