The USD/CHF pair experiences depreciation as the US Dollar declines amid expectations of a Federal Reserve rate hold in October. Safe-haven demand diminishes following US President Donald Trump’s declaration that immediate military action against Iran is not on the table. Europe’s fiscal concerns and declining bond yields have strengthened the franc, while inflation continues to be closely linked to oil prices. USD/CHF depreciates after registering over 0.5% gains the previous day, trading around 0.8230 during Asian hours on Monday. The pair loses ground as the US Dollar declines, with the Federal Reserve widely expected to maintain interest rates before potentially considering another rate hike in December.
According to the CME FedWatch Tool, markets are currently pricing in a 90.6% probability of a rate pause at the October 27-28 policy meeting, alongside a 79.7% chance of a hike in December. Moreover, the Greenback encounters challenges stemming from a reduction in safe-haven demand, influenced by US President Donald Trump dismissing the prospect of immediate military action against Iran, stating, “there will not be a strike today,” according to source. Market anxiety continues to loom regarding the potential for strikes to resume following this week’s Israeli elections and next week’s US midterm elections, with reports suggesting that Iran is ready to retaliate by targeting Israel and the UAE.
The Swiss Franc appreciated as the yield on the Swiss 10-year government bond declined to 0.5%, propelled by safe-haven demand in light of escalating concerns regarding Europe’s fiscal outlook. Simultaneously, the Meeting Minutes from the Swiss National Bank indicated that policymakers noted inflationary pressures without evidence of spillover effects into the wider economy, attributing the recent uptick in inflation chiefly to elevated oil prices and the depreciation of the Franc. Strategists uphold a prudent, pessimistic outlook on USD/CHF for the 1-3 week period, observing that they “have been holding a negative USD view since late last week.
In their latest update from Monday, 19 October, when the pair was trading around 0.8240, they noted that the Dollar “could decline further to 0.8200.That move has since materialised, with USD/CHF breaking below 0.8200 yesterday and reaching a low of 0.8190. UOB currently assesses that although the Dollar “could continue to decline,” the lack of a “significant increase in downward momentum” raises questions about the feasibility of reaching the next downside target at 0.8140 in the present movement. On the topside, the bank identifies 0.8250 as the crucial level to monitor, emphasising that “a breach of 0.8250 (‘strong resistance’ level previously at 0.8275) would indicate that USD is not declining further.
