The Swiss Franc (CHF) extended its decline against the US Dollar (USD) on Thursday, reaching a fresh 16-month low above 0.8380, as newly released Swiss inflation data reinforced expectations that the Swiss National Bank (SNB) will maintain its accommodative monetary policy stance for an extended period [1]. The USD/CHF pair is on track to complete a six-week rally, driven by the combination of subdued Swiss inflation and robust demand for the US Dollar, which is supported by surging US Treasury yields [1].
Swiss Consumer Price Index (CPI) data for September showed a year-over-year increase to 1%, up from 0.8% in August, while the monthly CPI was flat at 0%, down from 0.4% in the previous month. These figures were in line with market expectations and are not seen as sufficient to pressure the SNB into tightening monetary policy [1]. In contrast, Swiss retail sales accelerated to a 3.2% year-over-year pace in August, up from 2.6% in July and surpassing expectations of a slowdown to 2.2%. However, the stronger retail sales data did not offset the negative impact of the soft inflation figures on the Swiss Franc [1].
On the US side, the Dollar remains strong against major peers, underpinned by long-term US Treasury yields, with the 10-year note yield rising above 5.30% and the 30-year yield reaching 5.65%, both marking 24-year highs. This strength is further supported by ongoing uncertainty in the Middle East, which has contributed to higher energy prices [1]. US inflation data, specifically the Personal Consumption Expenditures (PCE) Price Index, grew less than expected in August, and July’s reading was revised lower, which has cooled market expectations for another Federal Reserve rate hike in October. However, this has not weakened the US Dollar’s position [1].
Societe Generale’s Jan Groen commented that while recent US inflation revisions were 'modestly favorable,' underlying inflation remains too high to give the Federal Reserve clear comfort. Groen noted that a pause in October is possible, but an October hike remains on the table pending further data [1].
CONCLUSION
The Swiss Franc's drop to a 16-month low reflects market confidence that the SNB will keep rates low due to subdued inflation, despite stronger retail sales. Meanwhile, the US Dollar continues to benefit from high Treasury yields and global uncertainty, maintaining its strength against the Swiss Franc.