Weaker US Dollar and inflationary pressure lift Swiss Franc

• Falling oil prices and the Democratic midterm sweep weigh on the US Dollar, pushing USD/CHF lower.
• Expectations of a Fed rate rise remain underpinned by robust ADP hiring figures and sustained growth in ISM services activity.
• An unexpected rise in Swiss inflation to 1.5% in October casts doubt on the SNB’s ability to keep interest rates unchanged through 2027.

At around 0.8140 in Thursday’s Asian session, USD/CHF is falling for a second consecutive day. Weakness in the US Dollar follows a Democratic sweep of the US midterm elections that gave the party control of both houses of Congress, fuelling concerns about potential political gridlock in Washington. Expectations that the Middle East conflict will end swiftly have also sent oil prices sharply lower, adding to the downward pressure on the dollar.

An increase of 86,000 in October private-sector employment, reported by ADP, exceeded the 69,000 forecast, although September’s reading was revised down from 90,000 to 86,000. The ISM Services PMI eased from 54.9 to 54.5, marginally missing expectations of 54.8 while still signalling solid expansion. Such resilience in domestic economic data has strengthened expectations of a Federal Reserve rate rise and may, however, lend the dollar support.

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

An unexpected acceleration in Swiss annual inflation to 1.5% in October is supporting the Swiss Franc (CHF) against its major counterparts. The increase has prompted questions about whether the Swiss National Bank (SNB) can refrain from tightening monetary policy through 2027.

USD/CHF downside depends on a decisive break below 0.8140, UOB says

A decisive breach of support is now required for USD/CHF to extend its decline, according to UOB Group strategists, who retain a cautiously bearish outlook over the next 1–3 weeks. Looking back at 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 observed 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,” a recovery that led UOB to conclude that “downward momentum has slowed.” For additional losses, the strategists say “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.” Conversely, they caution that “a break above 0.8220 (‘strong resistance’ level was at 0.8255 yesterday) would mean that USD is not declining further.”