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

• Down more than 1% over two days, USD/CHF slips to session highs just under 0.8150.
• At 1.5% year-on-year in October, Swiss CPI inflation picked up to its fastest pace in more than two years.
• With voting under way in the US midterm elections, the Greenback continues to face pressure.

Gains in the Swiss Franc (CHF) extend into a second consecutive day on Tuesday, supported by stronger-than-expected Swiss Consumer Price Index (CPI) figures. Meanwhile, the US Dollar (USD) remains under pressure as Americans vote in the midterm elections. In this backdrop, USD/CHF has touched a new seven-week low of 0.8149, taking its decline so far this week to more than 1%.

October consumer inflation rose to 0.2%, rather than remaining flat as markets had expected, according to Tuesday’s release from the Swiss Federal Statistics Office. On a year-on-year basis, inflation climbed from 1% in September to 1.5%, exceeding the market consensus of 1.3% and marking its fastest pace in more than two years.

Could consumer inflation bring forward the SNB’s consideration of rate hikes?

Although inflation remains too moderate to put pressure on the Swiss National Bank (SNB) to tighten monetary policy immediately, the figures confirm that energy costs are driving faster price growth. Given the complicated conflict in the Middle East, this trend appears likely to persist. Should it do so, the SNB might have to put monetary tightening back on the agenda, at the very least.

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

While ING considers a moderate Republican loss already priced in, it warns that a Democratic victory in both the House and the Senate could put further pressure on the Dollar. 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,”