Stronger-than-expected inflation growth lifts Swiss Franc to new seven-week highs

• With losses exceeding 1% over two days, USD/CHF slips to session highs just under 0.8150.
• October’s Swiss CPI rose at an annual rate of 1.5%, marking its fastest increase in more than two years.
• As Americans vote in the midterm elections, the US Dollar continues to face pressure.

Stronger-than-forecast Swiss Consumer Price Index (CPI) figures support a second consecutive day of gains for the Swiss Franc (CHF) on Tuesday. Meanwhile, the US Dollar (USD) remains under pressure as Americans cast their votes in the midterm elections. The USD/CHF pair has consequently touched 0.8149, a fresh seven-week low, taking its decline so far this week to more than 1%.

October’s consumer inflation reached 0.2%, rather than the flat reading markets had anticipated, according to figures published on Tuesday by the Swiss Federal Statistics Office. On a year-on-year basis, inflation picked up from September’s 1% to 1.5%, exceeding the market consensus of 1.3% and recording its fastest pace in more than two years.

Consumer inflation may bring SNB rate hikes into consideration sooner rather than later

Although these inflation rates remain too modest to put pressure on the Swiss National Bank (SNB) to tighten monetary policy immediately, they confirm that energy costs are driving faster price growth. Given the tangled conflict in the Middle East, that trend appears likely to persist. Should it do so, the SNB might at least be forced to put monetary tightening back on the agenda.

Uncertainty over the midterm elections, meanwhile, continues to weigh on the US Dollar. ING strategists say they “don’t expect today’s US midterm results to cause structural shifts in FX.” 

A moderate Republican loss is already reflected in market pricing, according to ING. However, the bank warns that the Dollar could face further pressure if Democrats win control of both the House and the Senate. In a note, ING says: “Fears of tougher regulation could weigh on AI stocks (we’ve recently seen how that can hit the greenback), while markets could price in greater risks of decision-making gridlock around issues such as government funding and the debt ceiling,”