Are US Dollar weakness and inflationary pressure driving Swiss Franc gains?

USD/CHF moves lower, with the US Dollar under pressure from the Democratic midterm sweep and the fall in oil prices.
Expectations of a Fed rate hike remain supported by robust ADP hiring data and sustained expansion in ISM services activity.
Can the SNB refrain from raising interest rates through 2027 after Swiss inflation unexpectedly rose to 1.5% in October?

Selling pressure keeps USD/CHF near 0.8140 in Thursday’s Asian session, extending the pair’s decline into a second consecutive day. The US Dollar has weakened after a Democratic sweep of the US midterm elections gave the party control of both houses of Congress, fuelling concerns about possible political gridlock in Washington. Adding to the Greenback’s losses, expectations of a quick resolution to the Middle East conflict sent oil prices sharply lower.

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

Resilient US economic readings could, however, lend the Greenback support by strengthening expectations of a Federal Reserve rate hike. According to the ADP employment report, private-sector employers added 86,000 jobs in October against expectations of 69,000. This came despite a downward revision to September’s reading, from 90,000 to 86,000. Services activity also continued to expand firmly: the ISM Services PMI eased from 54.9 to 54.5, marginally missing the 54.8 forecast.

Markets assign a probability of nearly 82% to another rate hike in December, according to the CME FedWatch Tool. Attention now turns to the next major economic releases, with weekly US Initial Jobless Claims due on Thursday, followed by Friday’s Nonfarm Payrolls (NFP) report.

Against its major counterparts, the Swiss Franc (CHF) is finding support from October’s unexpected rise in Swiss inflation to 1.5% year-on-year. The reading has cast doubt on whether the Swiss National Bank (SNB) can refrain from tightening monetary policy through 2027.

Can USD/CHF bears secure a decisive break below 0.8140? UOB weighs in

A decisive breach of key support is now needed for USD/CHF to extend its decline, according to UOB Group strategists, who retain a cautiously negative outlook over the 1–3 week horizon. Recounting their earlier assessment, they say they “revised our view to slightly negative last Friday (30 Oct, spot at 0.8240), highlighting that USD ‘could edge lower, but any decline should stay within a 0.8190/0.8290 range.’” Once USD “broke clearly below 0.8190,” however, the bank said yesterday that “downward momentum is increasing rapidly, and USD could decline to 0.8165, potentially testing 0.8140.” USD/CHF then “dropped to 0.8148 before rebounding strongly,” leading UOB to conclude that “downward momentum has slowed.” For another leg lower, the strategists stress that “USD must break and hold below 0.8140 before further declines can be expected,” identifying “the next level to watch below 0.8140” as “0.8110.” As for upside risks, their assessment is that “a break above 0.8220 (‘strong resistance’ level was at 0.8255 yesterday) would mean that USD is not declining further.”

Swiss Franc: frequently asked questions

Which factors shape movements in the Swiss Franc?

Market sentiment, Switzerland’s economic performance and decisions by the Swiss National Bank (SNB) are among the main influences on the Swiss Franc (CHF). Switzerland’s official currency ranks among the world’s ten most actively traded currencies, with trading volumes far exceeding the size of the country’s economy. From 2011 to 2015, the Franc was pegged to the Euro (EUR). The sudden removal of that peg drove its value up by more than 20% and sparked market turmoil. Although the peg no longer applies, CHF movements remain closely linked to those of the Euro because the Swiss economy relies heavily on the neighbouring Eurozone.

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. That appeal rests on Switzerland’s reputation for economic stability, a strong export sector, sizeable central bank reserves and a longstanding policy of neutrality in international conflicts. Together, these attributes make its currency attractive to investors seeking to reduce risk. In unsettled markets, CHF is therefore likely to appreciate against currencies regarded as riskier investments.

How can Swiss National Bank decisions move the Swiss Franc?

Monetary policy decisions at the Swiss National Bank (SNB) are taken four times a year, once each quarter, a less frequent schedule than that of other major central banks. Its objective is to keep annual inflation below 2%. If inflation exceeds the target, or is expected to do so in the foreseeable future, the SNB seeks 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, usually weigh on CHF.

Which economic indicators can affect the Swiss Franc’s value?

Switzerland’s macroeconomic releases help investors judge the health of its economy and can influence the valuation of the Swiss Franc (CHF). Despite the economy’s general stability, abrupt shifts in growth, inflation, the current account or the central bank’s foreign currency reserves can move CHF. Strong economic growth, low unemployment and elevated confidence typically support the currency. Signs of slowing momentum in the data, on the other hand, are likely to lead to depreciation.

Why does Eurozone monetary policy matter for the Swiss Franc?

The health of neighbouring Eurozone economies matters greatly to Switzerland, given its small, open economy. Switzerland’s principal economic partner and an important political ally is the broader European Union, making macroeconomic and monetary policy stability in the Eurozone crucial for both the country and 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.