Swiss Franc gathers pace amid US Dollar weakness after US midterm elections

USD/CHF comes under pressure from a weaker US Dollar after Democrats win a majority in the US House.
USD volatility is being driven by increased geopolitical risks linked to US-Iran tensions and the prospect of a Fed rate hike.
Expectations of an earlier SNB rate hike by 2027 gather pace as Swiss inflation rises to 1.5%.

A softer US Dollar (USD) is weighing on USD/CHF, which has given back the previous day’s gains and is trading near 0.8170 in Wednesday’s Asian session. The weakness follows Tuesday’s midterm elections, in which Americans voted on control of Congress for the final two years of President Donald Trump’s term. After Democrats wrested a majority in the House of Representatives from Republicans, markets are bracing for possible changes in congressional leadership and renewed uncertainty over the direction of US fiscal policy. According to live data from Decision Desk HQ, results have been called for 253 of the 435 House seats. Democrats hold 152 seats against the Republicans’ 101, with 218 required for a majority.

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

Geopolitical risks and monetary policy signals are also drawing close attention from financial markets alongside the political developments. With diplomatic efforts at an impasse, traders are assessing whether President Trump will restart military strikes against Iran. Following reported US airstrikes on Iran’s Qeshm Island, Washington and Tehran are both examining proposals put forward by mediators. While cheaper energy could moderate expectations of aggressive monetary tightening, markets continue to assign a 79% probability to a Federal Reserve interest rate hike in December, according to the CME FedWatch Tool.

Support for the Swiss Franc (CHF) from domestic inflation figures is adding to the downward pressure on USD/CHF. Switzerland’s inflation rate reached 1.5% in October, a near three-year high, largely because of higher imported energy costs. The reading is still inside the Swiss National Bank’s (SNB) 0% to 2% target band. Nevertheless, the sharp acceleration has prompted market participants to bring forward their rate-hike expectations, with a move now anticipated in early 2027.

Can USD/CHF sustain a break below support? UOB raises doubts as pair declines

Persistent volatility in USD/CHF remains in focus for UOB Group strategists, who describe the latest price action as follows: “USD subsequently dropped to a low of 0.8148 and then snapped back up to close at 0.8206 (+0.27%).” In their assessment, the Dollar “fell further today and it could break below 0.8140. However, it is unclear whether it can maintain a foothold below this level,” highlighting continued doubts over whether the pair can sustain a decline below key support.

Swiss Franc: Frequently Asked Questions

What are the main drivers of the Swiss Franc?

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 the country’s economy. Broader market sentiment, domestic economic conditions and measures taken by the Swiss National Bank (SNB) are among the factors that influence its value. A peg to the Euro (EUR) was in place between 2011 and 2015. Its sudden removal sent the Franc more than 20% higher and triggered market turmoil. Although the peg no longer operates, the Swiss economy’s heavy reliance on the neighbouring Eurozone means CHF movements generally remain closely correlated with those of the Euro.

What gives the Swiss Franc its safe-haven status?

Investors often turn to the Swiss Franc (CHF) during periods of market stress, giving it the status of a safe-haven asset. This reflects Switzerland’s perceived standing internationally: economic stability, a robust export sector, substantial central bank reserves and a long-established policy of neutrality in global conflicts make its currency attractive to investors seeking to avoid risk. During turbulent periods, CHF is therefore likely to appreciate against currencies regarded as riskier investments.

How does Swiss National Bank policy shape the Swiss Franc?

Monetary policy is decided by the Swiss National Bank (SNB) at four meetings each year, one per quarter, a lower frequency than at other major central banks. Its objective is annual inflation below 2%. If inflation exceeds the target, or is expected to do so in the foreseeable future, the SNB will seek to curb price increases by raising its policy rate. By lifting yields and making Switzerland more attractive to investors, higher interest rates generally support the Swiss Franc (CHF). Lower rates, by contrast, typically put downward pressure on CHF.

Why do economic releases matter for the Swiss Franc?

The Swiss Franc’s (CHF) valuation can respond to Switzerland’s macroeconomic releases, which provide important insights into the economy’s condition. Despite the economy’s overall stability, abrupt shifts in growth, inflation, the current account or the central bank’s currency reserves can cause CHF to move. Strong growth, low unemployment and elevated confidence usually support the currency. Evidence of fading economic momentum, on the other hand, is likely to leave CHF weaker.

Why is Eurozone monetary policy important for the Swiss Franc?

Switzerland’s small, open economy relies heavily on economic conditions in the neighbouring Eurozone. Since the wider European Union is its leading economic partner and an important political ally, stable macroeconomic conditions and monetary policy in the Eurozone are crucial for Switzerland and, in turn, the Swiss Franc (CHF). Reflecting this dependence, some models put the correlation between movements in the Euro (EUR) and CHF at more than 90%, close to a perfect correlation.