Swiss Franc gains ground as US Dollar retreats despite hot inflation data

• The Swiss Franc strengthens as a sharp pullback in US Treasury yields pressures the Greenback.
• Concerns over AI-related investments trigger risk aversion across global financial markets.
• A wide Fed-SNB interest rate gap could limit further gains in the Swiss Franc.

USD/CHF slips to two-week lows on Thursday as a sharp pullback in US Treasury yields weighs on the US Dollar (USD), overshadowing hotter-than-expected US producer inflation data. At the time of writing, the pair trades around 0.8286, retreating from 0.8395, its highest level since May 2025, touched on Wednesday.

Mounting concerns over AI-related investments fuel a sell-off across global equities, encouraging investors to move into government bonds. The resulting decline in US Treasury yields takes some support away from the Greenback, while the Swiss Franc (CHF) also benefits from safe-haven flows.

The benchmark 10-year US Treasury yield falls more than 8 basis points (bps) to 5.06%, its lowest level in three weeks. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, retreats toward 102.00 after reaching 102.94 the previous day.

The Dollar’s decline comes despite back-to-back hotter-than-expected US inflation reports. Data released on Thursday showed that the Producer Price Index (PPI) rose 1.3% MoM and 6.3% YoY in September, exceeding forecasts of 0.5% and 5.3%, respectively. Core PPI, which excludes food and energy, increased 0.7% MoM and 5.0% YoY, also beating estimates of 0.3% and 4.4%.

The figures follow Wednesday’s Consumer Price Index (CPI) report, which showed headline inflation accelerating to 3.7%, above the 3.6% forecast, while core inflation rose to 2.6%, exceeding expectations of 2.5%.

The data strengthen the case for further Federal Reserve (Fed) tightening to bring inflation back toward its 2% target. However, traders widely expect the Fed to keep interest rates unchanged at its October 27-28 meeting, while pricing in around a 90% chance of a rate hike by December, according to the CME FedWatch Tool.

Against this backdrop, the Swiss Franc could struggle to sustain a stronger recovery, given the Swiss National Bank’s (SNB) zero policy rate. The bar for an SNB rate hike appears relatively high, as inflation remains within its 0%-2% price stability range.