Fed rate pause expectations weigh on US Dollar as Swiss Franc gains

• Expectations of an October Fed rate hold weigh on the US Dollar (USD), pushing USD/CHF lower.
• With US President Donald Trump ruling out immediate military strikes against Iran, demand for safe-haven assets has softened.
• Fiscal worries in Europe and falling bond yields supported the franc, while oil prices remain a key influence on inflation.

Following a gain of over 0.5% in the previous session, USD/CHF trades lower at around 0.8230 in Monday’s Asian session. Weighing on the pair is a weaker US Dollar (USD), as the Federal Reserve (Fed) is widely expected to leave interest rates unchanged before potentially raising them again in December.

A 90.6% probability of rates remaining unchanged at the October 27–28 policy meeting is currently priced into markets, according to the CME FedWatch Tool. The implied probability of a December increase stands at 79.7%.

Reduced demand for safe havens is also putting pressure on the Greenback. According to Al Jazeera, US President Donald Trump ruled out immediate military action against Iran, saying, “there will not be a strike today,”

Investors nevertheless remain concerned that strikes could resume following this week’s Israeli elections and next week’s US midterm elections. Reports suggest Iran is ready to retaliate by targeting Israel and the UAE.

With concerns mounting over Europe’s fiscal outlook, safe-haven buying drove the Swiss 10-year government bond yield down to 0.5% and supported the Swiss Franc (CHF). Meanwhile, minutes from the Swiss National Bank (SNB) meeting showed that policymakers had noted inflationary pressures but no evidence of spillovers into the wider economy. They attributed the recent increase in inflation mainly to rising oil prices and a weaker franc.

Over a 1–3 week horizon, UOB Group strategists remain cautious and negative on USD/CHF, saying they have "been holding a negative USD view since late last week." Their latest update, issued on Monday, 19 October with the pair around 0.8240, suggested the Dollar "could decline further to 0.8200." That forecast has since been borne out: yesterday, USD/CHF fell through 0.8200, "reaching a low of 0.8190."

Although UOB believes the Dollar "could continue to decline," it questions whether the current move can reach the next downside target of 0.8140, given the lack of a "significant increase in downward momentum". For an upside signal, the bank is watching 0.8250, restating that "a breach of 0.8250 (‘strong resistance’ level previously at 0.8275) would indicate that USD is not declining further."