Swiss Franc gains momentum as US Dollar struggles following US midterms elections
- USD/CHF depreciates as the US Dollar weakens after Democrats secure the US House majority.
- Heightened geopolitical risks around US-Iran tensions and a potential Fed hike drive USD market volatility.
- Rising Swiss inflation to 1.5% fuels expectations of an earlier SNB rate hike by 2027.
USD/CHF has lost its recent gains from the previous day, trading around 0.8170 during Asian hours on Wednesday. The currency pair is experiencing downward pressure as the US Dollar (USD) weakens. This decline comes in the wake of the midterm elections on Tuesday, where Americans voted to determine control of Congress for the remaining two years of President Donald Trump’s term. With the Democrats securing a majority in the House of Representatives from the Republicans, markets are anticipating potential shifts in congressional leadership and fresh uncertainty regarding the future path of US fiscal policy. Live data from Decision Desk HQ shows results called in 253 of the 435 House seats, with Democrats holding 152 seats to the Republicans' 101 in the race to the 218 needed for a majority.
Beyond political developments, financial markets are closely monitoring geopolitical tensions and monetary policy signals. Traders are evaluating whether President Trump will resume military strikes against Iran, as diplomatic efforts remain stalled. Both Washington and Tehran are currently reviewing proposals from mediators following reported US airstrikes on Iran’s Qeshm Island. Although lower energy costs could temper expectations for aggressive monetary tightening, the CME FedWatch Tool indicates that markets are still pricing in a 79% probability of a Federal Reserve interest rate hike in December.
Compounding the pressure on the USD/CHF pair is the strength of the Swiss Franc (CHF), which has received domestic support following recent inflation data. Driven primarily by rising imported energy costs, Switzerland’s inflation climbed to a nearly three-year high of 1.5% in October. Even though this figure remains within the Swiss National Bank’s (SNB) 0% to 2% target range, the sudden acceleration has led market participants to price in an earlier rate hike, with expectations now pointing toward a move in early 2027.
USD/CHF slips as UOB questions sustainability of break below support
Strategists at UOB Group note that the recent volatility in USD/CHF has persisted, with the “USD subsequently dropped to a low of 0.8148 and then snapped back up to close at 0.8206 (+0.27%).” They add that the Dollar “fell further today and it could break below 0.8140. However, it is unclear whether it can maintain a foothold below this level,” underscoring lingering uncertainty around the pair’s ability to sustain a move beneath key support.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.