USD/CHF is trading with gains, extending its recovery to the upper 0.8900s after a busy Thursday (01/05) filled with US economic data and renewed Fed rate cut speculation. Although the ISM Manufacturing PMI and jobless claims reports pointed to labor market fragility and continued sector contraction, the greenback remains strong, supported by a steady US Dollar Index and risk-sensitive flows ahead of Friday's nonfarm payrolls report.

US jobless claims for the week ended April 26 jumped to 241,000, up from 223,000 the previous week and well above consensus estimates. The increase marked the highest level since August 2023 and further reinforced concerns that the labor market may be colder than previously thought. Meanwhile, the ISM Manufacturing PMI fell slightly to 48.7, a marginal decline from 49.0 in March. The index remained in contraction territory, with new orders and the production component slowing, while the employment subindex improved slightly from 44.7 to 46.5, indicating a gentle but sustained decline in factory payrolls.

The survey's inflation component, as measured by the Prices Paid Index, rose to 69.8, indicating that input costs remain elevated and inflation risks remain a concern. Market reaction was balanced: while some risk assets rallied on strong tech earnings, the U.S. Treasury curve remained inverted, and two-year yields below the Fed funds rate continued to fuel expectations of monetary easing.

Treasury Secretary Scott Bessent reiterated on Thursday that this yield configuration signals the need for the Federal Reserve to cut interest rates. According to Fed funds futures prices, markets are now pricing in more than 100 basis points of cuts by the end of 2025. Former Fed Chair Janet Yellen added to the pressure by warning that President Trump's tariff strategy could have a "very adverse" effect on growth, especially as the trade standoff with China remains unresolved and reciprocal talks remain stalled.

The Swiss franc remained broadly weaker in quiet European trade as markets remained focused on US data. The dollar's ​​resilience was also helped by a cautious tone from traders awaiting Friday's US jobs report, which will be key in confirming current macro trends and could solidify the Fed's next move. (Newsmaker23)

Source: Fxstreet