Swiss Franc's recovery stalls despite broad-based US Dollar weakness

The Swiss Franc (CHF) has trimmed some losses in a quiet market session on Tuesday, as a pullback on US Treasury yields and a mild reversal in Oil prices has undermined support for the safe-haven US Dollar (USD). The USD/CHF pair, however, stands above 0.8325 so far, which leaves the broader bullish structure intact.

US Treasury yields are pulling back from multi-decade highs, amid a moderate decline in Crude Oil prices. Brent Oil has retreated to $103.00 per barrel during the European trading session, about $2.5 below Monday’s highs, but still above $100, a level considered critical for global economic growth, which is keeping risk appetite subdued so far.

Earlier in the day, Cleveland Federal Reserve President Beth Hammack reiterated her hawkish message, calling for further monetary tightening in the coming months as, in her opinion, “inflation remains too high with the Fed having missed its 2% target for five and a half years.” 

Fed's Hammack reiterates her call for higher interest rates

Hammack's words failed to support the US Dollar, with the market awaiting US Consumer Price Index (CPI) and Producer Price Index (PPI) releases later in the week for a better assessment of the Fed’s tightening calendar. Investors are pricing in an 80% chance that the US central bank will stand pat on rates at its October 28 and 29 meeting, but remain confident on a rate hike in December, according to the FedWatch Tool. Markets await September’s inflation data to confirm those hopes.

In Switzerland, the calendar is thin this week, and the monetary policy divergence between the Fed and the Swiss National Bank (SNB) is likely to keep the CHF on the defensive. The SNB’s benchmark interest rate is at 0% and is not expected to move in the near term as inflation in Switzerland remains at moderate levels.

Looking ahead, Strategists at UOB Group maintain a steady medium-term stance on USD/CHF, reiterating that the Dollar “has likely entered a range-trading phase between 0.8245 and 0.8365.”