Swiss Franc strengthens as inflation data loom

• Annual CPI is forecast to reach 1.3%, lending support to the Swiss Franc.
• Slower Swiss retail sales contrast with robust manufacturing expansion, presenting a mixed economic picture.
• US election uncertainty and the forthcoming Nonfarm Payrolls figures weigh on USD against CHF.

Swiss annual Consumer Price Index (CPI) inflation is forecast to rise to 1.3% from 1.0%, while the monthly rate is expected to hold at 0% in October. Ahead of the domestic release, support for the Swiss Franc (CHF) is putting pressure on USD/CHF. Having surrendered its gains for the day, the pair is broadly unchanged at around 0.8180 in Tuesday’s Asian session.

September’s Swiss Real Retail Sales increased by 1.6% year-on-year, according to Monday’s figures. That was the weakest rise since March, falling short of the 3% forecast and slowing from August’s upwardly revised 3.9% gain. Manufacturing offered a stronger picture: the SVME Manufacturing Purchasing Managers Index (PMI) climbed from 55.3 in September to 56.7 in October. The reading surpassed market forecasts of 55.3 and extended the run of expansion to an eighth consecutive month.

Weakness in the US Dollar (USD) ahead of the US midterm elections has erased USD/CHF’s daily advance. High energy prices associated with the continuing conflicts with Iran have increased political pressure on US President Donald Trump and the Republican Party. Prediction markets now put the probability of the Democratic Party taking control of the US Senate at 74%, underscoring the high political stakes of the vote.

The US employment report, due later this week, is also in focus for market participants. By providing a fresh assessment of labour market conditions, the figures are expected to influence expectations for subsequent monetary policy decisions. With the Federal Reserve retaining its hawkish stance, the CME FedWatch Tool currently indicates roughly a 73% probability of a December rate rise after October’s policy pause.

Dollar Faces Pressure as US Political Support Shifts

Although the US midterms are only one of several influences on the Dollar, Commerzbank’s Norman Liebke warns that their outcome will remain relevant in the near term. In his view, “the election result is unlikely to be entirely irrelevant for the dollar,” and a Republican loss of majorities in both chambers would pose a risk: “the dollar could come under greater pressure, as the Trump administration would have less political backing overall.” Nor would a narrower change in Washington be without consequences, Liebke adds: “If only the House of Representatives changes hands, the dollar would likely face some headwinds as well, albeit to a lesser extent.”