Swiss Franc gains momentum ahead of inflation data

• Swiss Franc gains support as annual CPI is projected to rise to 1.3%.
• Mixed economic signals in Switzerland emerge, with slowing retail sales offset by strong manufacturing expansion.
• USD weakens against CHF amid US election uncertainties and upcoming Nonfarm Payroll data.

USD/CHF remains flat after losing its daily gains, trading around 0.8180 during Asian hours on Tuesday. The pair faces challenges as the Swiss Franc (CHF) receives support ahead of the domestic Consumer Price Index (CPI) data release. Swiss monthly inflation is expected to remain at 0% in October, while the annual CPI is seen to increase 1.3% from the previous 1.0%.

Monday data showed that Swiss Real Retail Sales rose by 1.6% year-on-year in September, slowing from an upwardly revised 3.9% increase in August and missing forecasts for a 3% gain. This was the smallest increase since March. However, the SVME Manufacturing Purchasing Managers Index (PMI) rose to 56.7 in October from 55.3 in September, exceeding market expectations of 55.3 and marking the eighth consecutive month of expansion.

The USD/CHF pair lost its daily gains as the US Dollar (USD) struggles ahead of the US midterm elections. Political pressure on US President Donald Trump and the Republican Party has mounted due to elevated energy prices linked to ongoing conflicts with Iran. Meanwhile, prediction markets currently reflect a 74% probability of the Democratic Party gaining control of the US Senate, highlighting the elevated political stakes surrounding the vote.

Meanwhile, market participants are keeping a close watch on the upcoming US jobs report scheduled for release later this week. The employment data is expected to offer fresh insights into labor market health and help shape expectations for future monetary policy decisions. The Federal Reserve has maintained a hawkish stance, with the CME FedWatch Tool currently pricing in roughly a 73% chance of a rate hike in December following a policy pause in October.

Dollar outlook tied to shifting US political backing

Commerzbank’s Norman Liebke cautions that the US midterm outcome will still matter for the Dollar in the near term, even if it is only one of several drivers. He argues that “the election result is unlikely to be entirely irrelevant for the dollar,” warning that if the Republicans were to lose their majorities in both chambers, “the dollar could come under greater pressure, as the Trump administration would have less political backing overall.” Liebke adds that a more limited shift in Washington would also carry consequences: “If only the House of Representatives changes hands, the dollar would likely face some headwinds as well, albeit to a lesser extent.”