Swiss Franc falls as oil-driven inflation helps US Dollar retain gains

• Higher oil prices intensify global inflation risks, supporting the US Dollar and lifting USD/CHF.
• An 83.9% probability of rates remaining unchanged next week is priced into markets, according to the FedWatch Tool.
• A 24.9% jump in imports narrowed Switzerland's trade surplus to CHF 1.31 billion in September.

At around 0.8260 during Wednesday's Asian session, USD/CHF is recovering from the previous day's losses. The advance reflects support for the US Dollar (USD) from safe-haven demand  as climbing oil prices intensify concerns over global inflation.

Conflicting signals on diplomatic contacts between the United States (US) and Iran are keeping oil traders cautious as prices move higher. Talks remain under way, but sentiment came under pressure after high-level meetings in Tehran. Pakistan’s army chief, Field Marshal Asim Munir, held discussions with senior Iranian diplomatic and military leaders on bilateral relations and the progress of talks with Washington. While efforts to resolve the conflict continue, a diplomat participating in the discussions said reports suggesting a final agreement was imminent were premature.

An 83.9% probability of the Federal Reserve (Fed) leaving interest rates unchanged next week is currently priced in by traders, according to the CME FedWatch Tool, alongside a 90% probability of a December rate increase. Markets are watching closely for indications of the Fed's next steps. Fed Chair Kevin Warsh, however, struck a neutral tone, stressing that he does not "prejudge" interest rate decisions. His remarks offered no clear indication of whether the central bank would raise rates or leave them unchanged at its forthcoming October policy meeting.

September's Swiss trade surplus fell sharply to CHF 1.31 billion from CHF 4.2 billion in the preceding month, figures published on Tuesday by the Federal Customs Administration of Switzerland showed. The surplus was the smallest since November 2022. Behind the contraction was a 24.9% month-on-month jump in imports, the strongest rise in more than a year, while exports increased by a more modest 1.5% MoM.

USD/CHF retains downside bias as UOB targets 0.8200 with 0.8300 limiting gains

Recent sessions have progressively strengthened the bearish bias in USD/CHF, according to strategists at UOB Group. With spot trading around 0.8280 last Friday, 16 Oct, they had warned that “downward momentum is building and if USD closes below 0.8245, it could decline toward 0.8225.” A subsequent drop to 0.8215 led them to revise their assessment yesterday, 19 Oct, when spot was close to 0.8240, saying USD “could decline further to 0.8200.” Their stance remains unchanged: they “will continue to hold the same view as long as USD holds below 0.8300,” with the “strong resistance” level unaltered and still limiting the upside.