USD/CHF remains below 0.9100 following Swiss Real Retail Sales

• USD/CHF appreciated as the US Dollar strengthened on the Fed’s hawkish shift regarding its policy outlook.
• Swiss Real Retail Sales increased by 0.8% YoY in November, against the expected 1.2% and prior 1.5%. rise.
• The recent dot plot in the Fed’s Summary of Economic Projections indicated expectations for just two rate cuts in 2025.

USD/CHF steadies after registering losses in the previous session, trading around 0.9100 during the Asian hours on Monday. The pair moves little following the release of Real Retail Sales in Switzerland, which came in at a 0.8% increase year-over-year in November, falling short of the expected 1.2% rise and previous reading of 1.5%. Traders will likely observe the country's Consumer Price Index (CPI) and Foreign Currency Reserves for December on Tuesday.

On Friday, the SVME Manufacturing Purchasing Managers Index (PMI) dipped slightly to 48.4 in December, down from 48.5 in November but marginally exceeding market expectations of 48.3.

The Swiss Franc (CHF), a traditional safe-haven currency, received support from escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict. Last week, Russia launched a drone strike on Ukraine's capital, Kyiv, early Wednesday on New Year's Day, causing two fatalities, injuring at least six people, and damaging buildings in two districts.

The USD/CHF pair gains support as the US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against six major currencies, holds its position near 109.00, close to recent highs. On Friday, the US manufacturing sector continued to contract in December, though at a slower pace, as the ISM Manufacturing PMI improved to 49.3 from 48.4 in November. This figure exceeded the market expectation of 48.4.

The US Dollar may further strengthen as the Federal Reserve (Fed) is expected to halt its easing cycle at the January meeting following three consecutive rate cuts. According to the latest dot plot in the Fed’s Summary of Economic Projections, policymakers anticipate the Federal Funds Rate reaching 3.9% by the end of the year, indicating expectations for just two rate cuts in 2025.

Fed officials have also signaled a more cautious approach to rate reductions in 2025. On Friday, Richmond Fed President Thomas Barkin highlighted that the benchmark policy rate should remain restrictive until there is greater confidence that inflation will return to the 2% target. Additionally, Fed Governor Adriana Kugler underscored the challenging balancing act facing US central bankers as they aim to slow the pace of monetary easing this year.