Weaker US Dollar and inflationary pressure lift Swiss Franc

USD/CHF weakens as the Democratic midterm sweep and lower oil prices weigh on the US Dollar.
Fed rate hike expectations remain supported by robust ADP hiring data and continued expansion in ISM services activity.
1.5% Swiss inflation in October, an unexpected increase, raises questions over whether the SNB can keep interest rates unchanged through 2027.

USD/CHF trades near 0.8140 in Thursday’s Asian session. Losses extend into a second consecutive day as the US Dollar retreats following a Democratic sweep of the US midterm elections. The result gave Democrats control of both houses of Congress, fuelling concerns about potential political gridlock in Washington. Expectations that the Middle East conflict could end swiftly also sent oil prices sharply lower, adding to pressure on the Greenback.

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

Resilient US economic figures could, however, offer the Greenback support by strengthening expectations of a Federal Reserve rate hike. October private-sector employment rose by 86,000, according to ADP, exceeding the 69,000 forecast. September’s reading was revised down from 90,000 to 86,000. At 54.5, the ISM Services PMI eased from 54.9 and narrowly missed the 54.8 forecast, while still signalling solid expansion.

Markets assign nearly an 82% probability to another December rate hike, according to the CME FedWatch Tool. Attention now turns to the next key economic releases: Thursday’s weekly US Initial Jobless Claims and Friday’s Nonfarm Payrolls (NFP) report.

An unexpected rise in Swiss annual inflation to 1.5% in October is supporting the Swiss Franc (CHF) against its major counterparts. The reading casts doubt on whether the Swiss National Bank (SNB) can avoid policy tightening through 2027.

0.8140 Break Is Key for USD/CHF Bears: UOB

A decisive support break is now essential for further USD/CHF weakness, 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,” 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,” prompting UOB’s assessment that “downward momentum has slowed.” For further losses, the bank says “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.” Its upside 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: Key Questions

The Swiss Franc’s Main Drivers

Switzerland’s official currency, the Swiss Franc (CHF), ranks among the world’s ten most actively traded currencies. Trading volumes far exceed the size of the Swiss economy. Broad market sentiment, Switzerland’s economic performance and Swiss National Bank (SNB) decisions are among the factors shaping its value. From 2011 to 2015, the Swiss Franc was pegged to the Euro (EUR). The abrupt removal of that peg sent the Franc more than 20% higher and caused market turmoil. Although the peg no longer applies, CHF movements remain closely linked to those of the Euro, reflecting Switzerland’s substantial dependence on the neighbouring Eurozone.

The Swiss Franc’s Safe-Haven Appeal

Investors often buy the Swiss Franc (CHF) during periods of market stress, giving it safe-haven status. That appeal reflects Switzerland’s perceived global standing: economic stability, a strong export sector, substantial central bank reserves and a longstanding policy of neutrality in international conflicts. These characteristics 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.

SNB Decisions and the Swiss Franc

Four monetary policy meetings are held by the Swiss National Bank (SNB) each year, one per quarter, a lower frequency than at other major central banks. Its objective is annual inflation below 2%. If inflation exceeds that target, or is forecast to do so in the foreseeable future, the SNB seeks to curb price growth by increasing its policy rate. Higher rates typically support the Swiss Franc (CHF): the resulting higher yields enhance Switzerland’s appeal to investors. Rate cuts, by contrast, generally weaken CHF.

Economic Data and CHF Valuation

Swiss macroeconomic releases help investors gauge the economy’s condition and can move the Swiss Franc (CHF). Despite Switzerland’s generally stable economy, sudden shifts in growth, inflation, the current account or the central bank’s foreign currency reserves can trigger CHF fluctuations. Strong economic growth, low unemployment and elevated confidence usually support the currency. Data signalling a loss of economic momentum, by contrast, are likely to weaken CHF.

Eurozone Monetary Policy and the Swiss Franc

Switzerland’s small, open economy relies heavily on the performance of its Eurozone neighbours. The wider European Union is both its principal economic partner and an important political ally. Stability in Eurozone macroeconomic conditions and monetary policy is consequently crucial for Switzerland 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.