Swiss Franc gathers pace as inflation data approach

1.3% annual CPI forecast supports the Swiss Franc.
Switzerland’s robust manufacturing expansion contrasts with slower retail sales growth, sending mixed economic signals.
US election uncertainty and the approaching Nonfarm Payrolls release weigh on USD against CHF.

USD/CHF trades near 0.8180. The pair is flat in Tuesday’s Asian session after surrendering its intraday gains. Support for the Swiss Franc (CHF) ahead of Switzerland’s Consumer Price Index (CPI) release is weighing on the pair. October’s monthly inflation rate is forecast to hold at 0%, while annual CPI inflation is expected to accelerate to 1.3% from 1.0%.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Swiss Real Retail Sales increased 1.6% year-on-year in September, figures released on Monday showed. Growth slowed from August’s upwardly revised 3.9% and fell short of the 3% forecast, recording the weakest increase since March. Manufacturing presented a stronger picture: the SVME Manufacturing Purchasing Managers Index (PMI) climbed from 55.3 in September to 56.7 in October. The reading beat market forecasts of 55.3 and extended the expansion to an eighth consecutive month.

Weakness in the US Dollar (USD) ahead of the US midterm elections erased USD/CHF’s intraday advance. Elevated energy prices associated with the continuing conflicts with Iran have increased political pressure on US President Donald Trump and the Republican Party. Prediction markets now assign a 74% probability to the Democratic Party taking control of the US Senate, underscoring the high political stakes of the vote.

Also in focus is the US jobs report due later this week. Investors expect the release to provide a fresh assessment of labour market conditions and inform expectations for subsequent monetary policy decisions. Against the Federal Reserve’s continued hawkish stance, the CME FedWatch Tool currently indicates roughly a 73% probability of a December rate increase after October’s policy pause.

US Political Support Shapes Dollar Outlook

The US midterm result remains relevant to the Dollar’s near-term outlook, although it is only one of several influences, according to Commerzbank’s Norman Liebke. His assessment is that “the election result is unlikely to be entirely irrelevant for the dollar,” with a Republican loss of majorities in both chambers posing a risk: “the dollar could come under greater pressure, as the Trump administration would have less political backing overall.” A narrower change in Washington would still matter, Liebke adds: “If only the House of Representatives changes hands, the dollar would likely face some headwinds as well, albeit to a lesser extent.”

Swiss Franc: Key Questions

Swiss Franc: Main Market Drivers

Among the world’s ten most actively traded currencies, the Swiss Franc (CHF) is Switzerland’s official currency, with trading volumes far exceeding the size of its domestic economy. Broad investor sentiment, Swiss economic conditions and Swiss National Bank (SNB) measures are among the influences on its value. A peg linked the Swiss Franc to the Euro (EUR) between 2011 and 2015. Its sudden removal sent the Franc more than 20% higher and triggered market turmoil. Although the peg no longer applies, the Swiss economy’s substantial reliance on the neighbouring Eurozone means CHF movements still tend to track those of the Euro closely.

Swiss Franc: The Safe-Haven Case

Investors tend to seek out the Swiss Franc (CHF) during periods of market stress, giving it safe-haven status. That appeal reflects Switzerland’s perceived strengths: economic stability, a powerful export sector, substantial central bank reserves and a longstanding policy of neutrality in international conflicts. These characteristics make its currency attractive to investors seeking to reduce risk. During turbulent periods, CHF is therefore likely to appreciate against currencies regarded as riskier investments.

Swiss Franc: The SNB Policy Effect

Monetary policy is set by the Swiss National Bank (SNB) at four meetings each year, one per quarter, a less frequent schedule than that of other major central banks. Its objective is annual inflation below 2%. If inflation exceeds the target, or is projected to do so in the foreseeable future, the SNB will seek to curb price increases by lifting its policy rate. The higher yields associated with higher interest rates generally support the Swiss Franc (CHF), as they enhance Switzerland’s appeal to investors. Lower rates, by contrast, typically put downward pressure on CHF.

Swiss Franc: Economic Data Drivers

Switzerland’s macroeconomic releases provide important evidence of economic conditions and can move the Swiss Franc (CHF). Despite the economy’s generally stable performance, abrupt shifts in growth, inflation, the current account or central bank currency reserves can trigger CHF fluctuations. Strong growth, low unemployment and elevated confidence usually support the currency. Data signalling a loss of economic momentum, however, are likely to lead to CHF depreciation.

Swiss Franc: Eurozone Policy Links

The health of neighbouring Eurozone economies is critical to Switzerland’s small, open economy. Switzerland’s principal economic partner and an important political ally is the broader European Union. Stability in Eurozone macroeconomic conditions and monetary policy is consequently vital for Switzerland and the Swiss Franc (CHF). Reflecting this reliance, some models put the correlation between movements in the Euro (EUR) and CHF at more than 90%, approaching a perfect relationship.