Fed rate pause expectations weigh on US Dollar, lifting Swiss Franc

October Fed pause bets weigh on the US Dollar (USD), pulling USD/CHF lower.
US President Donald Trump's decision to rule out immediate military strikes against Iran reduces demand for safe havens.
Lower bond yields and European fiscal worries supported the franc; oil prices remain a driver of inflation.

USD/CHF trades near 0.8230 in Monday's Asian session. The pair is retreating after a gain of over 0.5% the previous day. Weighing on the US Dollar (USD) are widespread expectations that the Federal Reserve (Fed) will leave interest rates unchanged before potentially raising them again in December.

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

Markets assign a 90.6% probability to unchanged rates at the October 27–28 policy meeting, according to the CME FedWatch Tool. The implied likelihood of a December increase stands at 79.7%.

Reduced safe-haven demand is also putting pressure on the Greenback. According to Al Jazeera, US President Donald Trump ruled out immediate military action against Iran, saying, “there will not be a strike today,”.

Investors nevertheless remain concerned that strikes could resume after this week’s Israeli elections and next week’s US midterm elections. Reports suggest Iran is ready to retaliate against Israel and the UAE.

Growing unease over Europe's fiscal outlook fuelled safe-haven demand, strengthening the Swiss Franc (CHF) as the Swiss 10-year government bond yield dropped to 0.5%. Separately, Swiss National Bank (SNB) Meeting Minutes showed that policymakers saw inflationary pressures but no evidence of spillovers into the wider economy. They attributed the recent inflation increase mainly to higher oil prices and a weaker Franc.

For the 1–3 week outlook, UOB Group strategists retain a cautious, negative bias on USD/CHF, saying they have "been holding a negative USD view since late last week." Their latest update on Monday, 19 October, with the pair near 0.8240, indicated that the Dollar "could decline further to 0.8200." That forecast move has now occurred: yesterday, USD/CHF fell through 0.8200, "reaching a low of 0.8190."

Although the Dollar "could continue to decline," UOB questions whether the current move can reach its next downside target of 0.8140 without a "significant increase in downward momentum". The bank identifies 0.8250 as the critical upside level, repeating that "a breach of 0.8250 (‘strong resistance’ level previously at 0.8275) would indicate that USD is not declining further."

Swiss Franc: Key Questions

Swiss Franc: Main Currency Drivers

Switzerland’s official currency, the Swiss Franc (CHF), ranks among the ten most actively traded currencies worldwide. Trading volumes far exceed the size of the Swiss economy. Among the forces shaping its value are overall market sentiment, domestic economic conditions and Swiss National Bank (SNB) decisions. 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 triggered market turmoil. Although the peg no longer applies, CHF movements generally remain closely correlated with those of the Euro because Switzerland’s economy relies heavily on the neighbouring Eurozone.

Swiss Franc: The Basis for Its Safe-Haven Status

During periods of market stress, investors tend to buy the Swiss Franc (CHF), giving it the status of a safe-haven asset. That appeal reflects Switzerland’s perceived global standing: economic stability, a robust export sector, substantial central bank reserves and a long-established policy of neutrality in international conflicts. These characteristics make its currency attractive to investors seeking to avoid risk. In turbulent markets, CHF is therefore likely to appreciate against currencies regarded as riskier investments.

Swiss Franc: The Impact of Swiss National Bank Decisions

Monetary policy decisions are taken by the Swiss National Bank (SNB) at four meetings a year, one 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 expected to do so in the foreseeable future, the SNB will seek to restrain price increases by lifting its policy rate. Higher rates typically support the Swiss Franc (CHF): they raise yields and make Switzerland more attractive to investors. Lower rates, by contrast, usually weigh on CHF.

Swiss Franc: Economic Data and Currency Valuation

Swiss macroeconomic releases help investors gauge the economy’s condition and can shift the valuation of the Swiss Franc (CHF). Despite Switzerland’s generally stable economy, abrupt changes in growth, inflation, the current account or central bank currency reserves can move CHF. Strong growth, low unemployment and elevated confidence normally support the currency. Data signalling a loss of economic momentum, however, is likely to weaken it.

Swiss Franc: Links to Eurozone Monetary Policy

Switzerland’s small, open economy relies heavily on economic conditions in the neighbouring Eurozone. Its principal economic partner and an important political ally is the wider European Union. Stable macroeconomic conditions and monetary policy in the Eurozone are consequently crucial to Switzerland and, in turn, the Swiss Franc (CHF). Reflecting that dependence, some models put the correlation between movements in the Euro (EUR) and CHF at more than 90%, approaching a perfect correlation.