Swiss Franc builds momentum as inflation data approaches

Support for the Swiss Franc builds on expectations of annual CPI rising to 1.3%.
Switzerland’s economic picture remains mixed as robust manufacturing expansion counters slower retail sales growth.
Pressure on the USD against CHF persists as US election uncertainty and forthcoming Nonfarm Payroll data weigh on sentiment.

Support for the Swiss Franc (CHF) ahead of Switzerland’s Consumer Price Index (CPI) release is keeping USD/CHF under pressure. Having surrendered its gains for the day, the pair is trading broadly unchanged near 0.8180 during Tuesday’s Asian session. Monthly Swiss inflation is forecast to hold at 0% in October, while annual CPI inflation is expected to rise to 1.3% from 1.0% previously.

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

Swiss economic releases on Monday offered contrasting signals. Real Retail Sales increased 1.6% year-on-year in September, the weakest rise since March, against forecasts of 3%. This followed an upwardly revised 3.9% gain in August. Manufacturing, however, remained stronger: the SVME Manufacturing Purchasing Managers Index (PMI) advanced from September’s 55.3 to 56.7 in October. The reading beat market expectations of 55.3 and marked an eighth consecutive month of expansion.

Weakness in the US Dollar (USD) ahead of the US midterm elections erased USD/CHF’s gains for the day. Elevated energy prices associated with ongoing conflicts with Iran have intensified political pressure on US President Donald Trump and the Republican Party. Prediction markets, meanwhile, assign a 74% probability to the Democratic Party taking control of the US Senate, underscoring the high political stakes of the vote.

Also in focus is the US jobs report due later this week, which market participants will scrutinise for fresh indications of labour market conditions and implications for future monetary policy decisions. With the Federal Reserve retaining its hawkish stance, the CME FedWatch Tool currently indicates roughly a 73% probability of a December rate hike following October’s policy pause.

How could a shift in US political backing affect the Dollar?

For Commerzbank’s Norman Liebke, the US midterm result remains relevant to the Dollar’s near-term outlook, even though it is just one of several influences. Noting that “the election result is unlikely to be entirely irrelevant for the dollar,” he cautions that a Republican loss of majorities in both chambers would mean “the dollar could come under greater pressure, as the Trump administration would have less political backing overall.” Even a narrower change in Washington would have implications, Liebke adds: “If only the House of Representatives changes hands, the dollar would likely face some headwinds as well, albeit to a lesser extent.”

Swiss Franc: frequently asked questions

Which factors shape movements in the Swiss Franc?

As Switzerland’s official currency, the Swiss Franc (CHF) ranks among the ten most actively traded currencies worldwide, with trading volumes far exceeding the size of the Swiss economy. Broader market sentiment, domestic economic conditions and Swiss National Bank (SNB) decisions are among the factors influencing its value. From 2011 to 2015, the Franc was pegged to the Euro (EUR). Its abrupt removal sent the Franc more than 20% higher and triggered market turmoil. Although that peg no longer applies, the Swiss economy’s heavy reliance on the neighbouring Eurozone means CHF movements still tend to track those of the Euro closely.

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. Switzerland’s reputation rests on its stable economy, strong export sector, substantial central bank reserves and longstanding policy of neutrality in global conflicts. These characteristics make its currency attractive to investors seeking to reduce risk. During turbulent periods, CHF is 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 at other major central banks. Its objective is annual inflation below 2%. If inflation exceeds the target, or is projected to do so in the foreseeable future, the SNB will seek to curb price increases by raising its policy rate. Such rate increases generally support the Swiss Franc (CHF): higher yields make Switzerland more attractive to investors. Lower interest rates, by contrast, typically put pressure on CHF.

What do Swiss economic releases mean for the Franc’s value?

Switzerland’s macroeconomic releases help investors gauge the economy’s condition and can influence the valuation of the Swiss Franc (CHF). Despite the economy’s broad stability, abrupt shifts in growth, inflation, the current account or central bank currency reserves can prompt CHF movements. Strong economic growth, low unemployment and buoyant confidence generally support the currency. Data signalling a loss of economic momentum, on the other hand, is likely to lead to CHF depreciation.

Why does Eurozone monetary policy matter for the Swiss Franc?

Switzerland’s small, open economy relies heavily on the economic health of its Eurozone neighbours. With the broader European Union serving as its main economic partner and an important political ally, stability in Eurozone macroeconomic conditions and monetary policy is crucial for Switzerland and, in turn, the Swiss Franc (CHF). Reflecting this dependence, some models put the correlation between the fortunes of the Euro (EUR) and CHF at more than 90%, close to a perfect correlation.