USD/CHF drops as US Dollar weakens on improved risk appetite

• The US Dollar declines sharply after the government reopens, improving risk appetite.
• Expectations for a December rate cut are fading, yet the US Dollar finds no support.
• The Swiss Franc remains underpinned by low inflation and a stable domestic backdrop.

USD/CHF trades sharply lower on Thursday, hovering around 0.7910, down 0.80% for the day at the time of writing. The pair extends its seven-day losing streak, reaching a three-week low. The corrective move continues as broad-based weakness in the US Dollar (USD) weighs on the pair, following improved risk sentiment after the reopening of the US government.

The return to normal operations comes after US President Donald Trump signed the funding bill that ended 43 days of budget paralysis, the longest shutdown in recent US history. The removal of political risk immediately triggered renewed risk appetite, reducing the defensive appeal of the US Dollar.

Nevertheless, the reopening of the US government brings a period of uncertainty, as federal agencies must now catch up on the economic releases delayed during the shutdown. Several key indicators, including October's jobs and inflation reports, may not be published, complicating the Federal Reserve's (Fed) assessment of current economic conditions. As a result, the outlook for monetary policy remains uncertain.

Expectations for a Fed rate cut in December have softened recently, although this offers little support to the US Dollar amid a more constructive market mood. Fed officials have highlighted concerns about labor-market dynamics and inflation expectations, reinforcing the need for caution in the coming weeks.

In Switzerland, the Swiss Franc (CHF) remains structurally supported. Investors continue to favor the currency amid subdued inflation and stable growth prospects. Recent data showed that Swiss producer prices remain in deflation, a factor that keeps domestic price pressures low, as highlighted in recent economic indicators.

At the same time, markets are monitoring signals from the Swiss National Bank (SNB), whose recent comments suggested more confidence in the inflation outlook for the coming quarters, reducing the likelihood of a return to negative rates.