Swiss Franc slides as hot US inflation reinforces hawkish Fed outlook

The Swiss Franc experienced a sharp decline on Wednesday as the US inflation data exceeded forecasts, bolstering expectations of additional interest rate hikes by the Federal Reserve. The USD strengthened alongside a resurgence in US Treasury yields, rendering the CHF vulnerable. At the time of the report, the USD/CHF exchange rate was trading at 0.8390, up 0.77% for the day.

The US Dollar Index (DXY), which gauges the Greenback against six significant currencies, also trended higher toward 102.85, the highest level since April 2025. The benchmark 10-year US Treasury yield hovered near 5.27%, following a brief surge above 5.30%, remaining notably above the low of approximately 5.18% throughout the day.

The US Bureau of Labor Statistics unveiled that annual headline inflation surged to 3.7% in September, surpassing the 3.6% forecast, while core inflation climbed to 2.6%, exceeding expectations of 2.5%. Monthly headline CPI saw an increase of 0.6%, in line with predictions, whereas core CPI rose by 0.3%, surpassing the 0.2% expectation.

Persistent high energy prices continue to be a primary catalyst for headline inflation. The absence of a near-term resolution between the US and Iran to reopen the Strait of Hormuz, coupled with ongoing hostilities between Saudi Arabia and Yemen’s Houthis, which heighten supply risks, may keep energy-driven price pressure in place for an extended period, complicating the Fed’s attempt to rein in inflation to its 2% objective.

Traders now assign a 43% probability of a rate hike during the October 27-28 meeting, up from 22% prior to the CPI release, while the likelihood of a December hike stands near 95%, according to the CME FedWatch Tool. Meeting the criteria for a Swiss National Bank (SNB) rate hike appears more stringent. In its September assessment, the SNB forecasted average inflation of 0.7% for the year and 0.8% for both 2027 and 2028, staying within the 0%-2% price stability range across the entire forecast horizon.

Market participants are now eagerly anticipating the release of US Producer Price Index (PPI) and retail sales figures on Thursday. Given the scarcity of significant releases on the Swiss economic calendar for the remainder of the month, US data and shifts in Fed expectations are expected to remain the primary drivers of USD/CHF in the near term.