Swiss Franc hits fresh seven-week highs as inflation growth beats expectations

• USD/CHF dips to session highs just below 0.8150 and is more than 1% down in two days.
• Swiss CPI accelerated to a 1.5% year-on-year pace in October, its hottest reading in more than two years.
• The Greenback remains on the defensive with US voting in the midterm elections.

The Swiss Franc (CHF) extends gains for the second consecutive day on Tuesday, favoured by higher-than-expected Swiss Consumer Price Index (CPI) data while the US Dollar (USD) remains on the defensive, as US voters head to the polls in the midterm elections. Against this background, the USD/CHF pair has hit a fresh seven-week low at 0.8149 and is more than 1% down so far this week.

Data released by the Swiss Federal Statistics Office on Tuesday revealed that consumer inflation accelerated to a 0.2% pace in October, against market expectations of a flat reading and to 1.5% year-over-year, its fastest reading in more than two years, up from 1% in September, and also beyond the 1.3% market consensus.

Consumer Inflation might prompt the SNB to consider rate hikes sooner rather than later

These are still moderate inflation rates to pressure the Swiss National Bank (SNB) to tighten its monetary policy immediately, but they confirm that energy costs are boosting price growth. If this trend continues, as it looks to be the case, considering the entangled conflict in the Middle East, the SNB might be forced to, at least, bring monetary tightening back to the table.

The US Dollar, on the other hand, remains on the defensive amid the uncertainty surrounding midterm elections. Strategists at ING affirm that they “don’t expect today’s US midterm results to cause structural shifts in FX.” 

ING says that a moderate Republican loss has already been priced in, but cautions that if Democrats secure both the House and the Senate, the Dollar may come under additional pressure. “Fears of tougher regulation could weigh on AI stocks (we’ve recently seen how that can hit the greenback), while markets could price in greater risks of decision-making gridlock around issues such as government funding and the debt ceiling,” says ING in a note.