Swiss Franc Weakens As US Dollar Holds Gains On Oil-Driven Inflation

USD/CHF gains ground after posting losses the previous day, trading around 0.8260 during Asian hours on Wednesday. The pair appreciates as the US Dollar (USD) receives support safe-haven demand  amid rising oil prices heighten global inflation concerns.

Oil prices rise as traders carefully evaluate mixed signals regarding diplomatic engagements between the United States (US) and Iran. Although negotiations remain active, market sentiment faced headwinds following high-level meetings in Tehran, where Pakistan’s army chief, Field Marshal Asim Munir, met with senior Iranian diplomatic and military leaders to discuss bilateral ties and the status of talks with Washington. A diplomat involved in the discussions clarified that while conflict resolution efforts are ongoing, reports of an imminent final agreement are premature.

Financial markets are closely gauging the Federal Reserve's (Fed) next moves. According to the CME FedWatch Tool, traders currently price in an 83.9% probability that the Fed will keep interest rates on hold next week, alongside a 90% chance of a rate hike in December. However, Fed Chair Kevin Warsh maintained a neutral stance, emphasizing that he does not "prejudge" interest rate decisions and leaving markets without a definitive signal on whether the central bank will raise or hold rates steady at its upcoming October policy meeting.

According to data released Tuesday by the Federal Customs Administration of Switzerland, the country's Trade Surplus narrowed significantly to CHF 1.31 billion in September, down from CHF 4.2 billion the previous month. This represents the narrowest trade surplus since November 2022, driven by a 24.9% month-on-month surge in imports, a more than one-year high. Meanwhile, exports saw a modest gain of 1.5% MoM.

USD/CHF downside bias intact as UOB keeps focus on 0.8200 while 0.8300 caps

Strategists at UOB Group note that the bearish bias in USD/CHF has been steadily reinforced over recent sessions. They recall that last Friday, 16 Oct, with spot around 0.8280, they had highlighted that “downward momentum is building and if USD closes below 0.8245, it could decline toward 0.8225.” The pair subsequently fell to a low of 0.8215, prompting an updated call yesterday, 19 Oct, when spot was near 0.8240, that USD “could decline further to 0.8200.” UOB stresses that they “will continue to hold the same view as long as USD holds below 0.8300,” with no change to the “strong resistance” level that continues to cap the topside.