Swiss Franc Gains Despite Stable US Dollar Amid Ongoing Inflation Risks

USD/CHF halts its three-day winning streak, trading around 0.8330 during Asian hours on Thursday. However, the downside of the pair could be limited as the US Dollar (USD) gains solid backing from the Federal Open Market Committee's (FOMC) hawkish stance amid ongoing inflation risks.

Minutes from the Federal Reserve’s (Fed) September meeting revealed unanimous support among all 19 policymakers for the September rate hike, with a majority indicating another increase would likely be appropriate by year-end. Although markets widely expect the central bank to keep interest rates on hold at its October meeting, CME's FedWatch tool shows traders are still pricing in a 78.3% probability of a December rate increase.

Further supporting the Greenback, US Treasury bond yields have rebounded back toward multi-decade highs not seen since 2002, with the 10-year and 30-year Treasury notes trading around 5.31% and 5.70%, respectively. Investors are now turning their focus to upcoming remarks from key Fed officials, including Christopher Waller and Alberto Musalem, for additional guidance on the interest rate trajectory.

Meanwhile, the USD/CHF pair could see further upside as the Swiss Franc contends with monetary policy headwinds. Economists generally expect the Swiss National Bank (SNB) to hold its policy rate at 0% over the coming years, even as money markets attempt to price in up to three rate hikes next year.

While Swiss inflation accelerated to 1.0% in September due to elevated energy costs, reaching the midpoint of the SNB’s target band, it remains well within the central bank's price-stability threshold, giving policymakers little immediate pressure to tighten policy.