• USD/CHF advances as the US Dollar finds support despite growing doubts over AI trade sustainability.
• The Swiss Franc may further strengthen alongside falling Swiss 10-year bond yields, driven by escalating Middle East geopolitical risks.
• SNB Minutes noted rising inflation from higher oil prices and past currency weakness, without broader domestic spillover effects.

USD/CHF holds ground after three days of losses, trading around 0.8210 during Asian hours on Friday. The currency pair has inched higher as the US Dollar (USD) recovers its daily losses despite mounting doubts regarding the sustainability of the AI trade. Investor confidence weakened after quarterly US earnings reports from several megacap technology companies failed to meet expectations.

Meanwhile, escalating geopolitical conflict in the Middle East has driven broader market risk aversion. Reports indicating that the US and Israel are preparing additional military strikes against Iran following the upcoming midterm elections have intensified safe-haven demand, bolstering both the Japanese Yen and Swiss Franc against the Greenback.

Meanwhile, Federal Reserve (Fed) officials have indicated little urgency to accelerate policy tightening. Fed Chair Kevin Warsh recently expressed optimism regarding the underlying strength of the US economy but refrained from signaling whether additional interest rate hikes would be required. Despite this measured guidance, market participants utilizing the CME FedWatch Tool currently price in a 92.8% probability of a rate pause at the upcoming October 27–28 policy meeting.

Looking ahead, the USD/CHF pair may face further downside pressure as the Swiss Franc (CHF) could receive support from safe-haven flows. Yield on the Swiss 10-year government bond fell near 0.48%, supported by safe-haven demand amid ongoing concerns over Europe’s fiscal outlook.

Recent SNB meeting minutes highlighted that Swiss policymakers observed rising inflationary pressures without broad spillover effects into the domestic economy, attributing the increase primarily to higher oil prices and previous franc weakness. The Swiss National Bank maintained its policy rate at 0%, with Chair Martin Schlegel stating that no adjustments are currently required as inflation remains stable within target ranges. While economists expect rates to stay on hold through 2027, financial markets are currently pricing in a potential rate hike in early 2027.

USD/CHF bears stay in control as UOB holds line on downside targets

Strategists at UOB Group reiterate their cautious stance on USD/CHF over the 1–3 week horizon, noting that recent price action has unfolded broadly in line with their earlier guidance. They recall that last Friday, 16 October, with the spot trading near 0.8280, they had highlighted that “downward momentum is building and if USD closes below 0.8245, it could decline toward 0.8225.” After the pair subsequently slipped to a low of 0.8215, UOB updated its view on Monday, 19 October, when spot was around 0.8240, stating that USD “could decline further to 0.8200.” The bank now emphasizes that it will “maintain our view as long as USD holds below 0.8275,” which they continue to flag as a “strong resistance” level, previously set at 0.8290.