Stronger US inflation data propels market expectations toward an 85% likelihood of a December Fed rate hike. The safe-haven US Dollar is experiencing gains, yet it may face potential downward pressure as geopolitical tensions in the Middle East appear to be easing. The SNB is anticipated to maintain interest rates at 0% in the upcoming month, as inflation remains firmly under control. USD/CHF extends its gains for the second consecutive day, trading around 0.8260 during early European hours on Wednesday. The currency pair continues to appreciate as the US Dollar remains firm following the latest US inflation report. The data has bolstered market anticipations for a Federal Reserve rate hike in December, with the CME FedWatch Tool presently indicating an 85% likelihood of an increase next month.
The US Consumer Price Index increased by 0.4% month-over-month in October, surpassing the forecast of 0.3%, although it represented a deceleration from September’s 0.6% increase. Core CPI, which excludes volatile food and energy prices, increased by 0.3%, aligning with September’s rate and surpassing expectations of 0.2%. Annual inflation metrics for October were not released by the Bureau of Labour Statistics as a result of last year’s government shutdown. According to Commerzbank, US inflation remains uncomfortably elevated, with the bank stressing that “prices are still rising too quickly, even though the increase was somewhat smaller than in September.” In their view, the latest moderation in the monthly pace of gains does not yet signal a convincing shift toward price stability. However, the Greenback may encounter short-term challenges due to a reduction in safe-haven demand as geopolitical tensions appear to be subsiding.
US President Donald Trump indicated that additional military action against Iran may not be required, a view that was shared by US Secretary of State Marco Rubio during the G7 meeting. Meanwhile, Congressional Democrats are seeking to utilise the impending government funding deadline as a means to encourage the administration to pursue a peaceful diplomatic resolution. On the Swiss front, Swiss National Bank Chairman Schlegel noted that price pressures remain contained and that the central bank has successfully fulfilled its medium-term price stability mandate. Declining oil prices have further tempered inflationary pressures. Consequently, the SNB is widely anticipated to maintain interest rates at 0% during its forthcoming meeting. While financial markets are pricing in a potential rate hike by early 2027, most economists anticipate that the first increase will materialise nearer to late 2027. In the daily chart, USD/CHF is positioned at 0.8260. In the absence of key moving averages or structural levels, the near-term sentiment is primarily influenced by momentum.
The 14-day Relative Strength Index is positioned around 54, indicating a slight positive tilt after a recovery from mid-range readings. This suggests that downside pressure has diminished, with buyers slowly reasserting their influence. On the downside, the absence of clearly defined support levels in the dataset indicates that traders will likely rely on recent swing lows and intraday price movements for guidance. Conversely, on the topside, any potential recovery is expected to encounter resistance at previous reaction highs, which are not quantified in this context. The latest FXS Fed Sentiment Index reading at 145.61, positioned close to the upper limit of its recent range, subtly supports a favourable environment for the dollar. This could facilitate an extension of gains for USD/CHF should the price surpass the nearby chart highs on the daily timeframe. Fed’s Goolsbee delivered a notably more hawkish tone, with an FXS Speechtracker score of 8/10 versus a historical average of 6.8/10, underscoring rising concern about persistent price pressures.
The emphasis that the latest CPI was “borderline disturbing,” that services inflation is “not coming down,” and that there is “a real inflation issue” that the Fed is “going to have to deal with” signals a lower tolerance for upside inflation surprises despite a “steady and stable” job market. The repeated stress on inflation becoming embedded in expectations and the assertion that “everything is always on the table” keep the door open to renewed tightening or a longer-for-longer stance, a configuration typically supportive for the Dollar and negative for risk-sensitive currencies. The FXS Fed Sentiment Index increased by 1.69 points to 145.61, indicating that the speech remains decisively in hawkish territory, significantly surpassing the neutral threshold of 100. This upward shift in the FXS Fed Sentiment Index, aligned with the elevated FXS Speechtracker score, should support expectations for the persistence of restrictive policy and may continue to favour the Dollar over the Euro and Yen in the near term.
