Swiss Franc retraces previous gains with all eyes on US CPI data, Fed speakers

• USD/CHF appreciates to session highs near 0.8340 after bouncing from 0.8317 lows.
• The US Dollar pares previous losses heading into the release of September's CPI data.
• Fed-SNB monetary policy divergence is keeping Swiss Franc rallies subdued this week.

The Swiss Franc (CHF) has given away earlier gains against the US Dollar (USD) during Wednesday’s European session, but remains trading within previous ranges, with investors cautious, awaiting the release of key US inflation data. The USD/CHF pair trades a few pips below 0.8340, after bouncing from session lows at 0.8318 but remains capped below weekly highs in the 0.8350 area.

The US Dollar is trimming losses heading into the release of September’s US Consumer Price Index (CPI) data, which is expected to provide further insight into the Federal Reserve (Fed) near-term stance. Headline inflation is seen accelerating to a 3.6% pace in the year to September, from 3.4% in August, while core inflation is expected to have risen by a more moderate 2.5% year-on-year (Y-o-Y) rate, from 2.4% in the previous month.

These figures would strengthen the case for a further rate hike in the next quarter of the year, most likely in December, with the 2027 rate path a bit cloudier. Futures markets are pricing in at least two more quarter-point hikes next year, according to the CME’s FedWatch Tool. The New York Fed President, John Williams, however, cast doubt on these hopes on Tuesday, affirming that he does not see the need for further monetary tightening in 2027.

Dollar reaction seen limited without a meaningful downside surprise in US CPI

Analysts at MUFG highlight that “we remain sceptical that inflation pressures will continue to build” and, while they foresee a rate hike in December, they “do not expect the Fed to deliver the two further rate hikes currently priced by the markets.”

A standard inflation outcome is unlikely to shift the policy narrative, according to MUFG experts, who also affirm that “a consensus CPI print today is unlikely to alter rate expectations much,” while “a meaningful miss to the downside (0.0% m/m core) would be required to see a notable Dollar sell-off.”

In Switzerland, the calendar has been thin in the first half of the week, and the Fed - Swiss National Bank (SNB) monetary policy divergence has been the main driver for the pair, keeping Swissie bulls subdued. Later this week, the Swiss Producer and Import Prices Index will provide further insight into the inflationary trends,, although it is unlikely to alter the expectations that the SNB will keep interest rates unchanged for the foreseeable future.