The Democrats’ victory in the midterm elections has exposed the US dollar’s vulnerability: its growing dependence on the AI-driven rally. Tighter regulation could create an opportunity to sell the USD/CHF. Moreover, the Swiss National Bank considers raising interest rates. Let’s analyze the situation and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- Inflation in Switzerland is accelerating.
- The SNB may move away from zero interest rates.
- The loss of exceptionalism is negative for the dollar.
- Short positions can be considered as long as the price remains below 0.8120.
Weekly Fundamental Forecast for Franc
The Japanese yen and Swiss franc have emerged as the main beneficiaries of the Democrats’ victory in the midterm elections. While the US dollar risks losing one of its key advantages—American exceptionalism—both safe-haven currencies are gaining support as US Treasury yields fall. Meanwhile, Swiss inflation has risen above the midpoint of the Swiss National Bank’s 0–2% target range for the first time since August 2024, fueling speculation about a potential interest rate hike. This adds another bearish factor for the USD/CHF.
In September, the SNB left its monetary policy unchanged and indicated that currency intervention to weaken the franc was unnecessary. Its reasoning was that, although the franc initially appreciated at the outbreak of the Middle East conflict due to safe-haven demand, the subsequent rally in Brent crude helped USD/CHF bulls regain control. On a trade-weighted basis, the Swiss franc was still approximately 3% weaker than in July, giving the central bank little incentive to intervene in the Forex market.
USD/CHF Performance and Brent Price
Source: TradingView.
However, a shift in consumer demand toward domestically produced goods, as imported products become more expensive due to the weaker franc, has spurred inflation in Switzerland. In October, inflation rose from 1% to 1.5%, reaching a three-year high. This figure also exceeded the SNB’s fourth-quarter forecast of 1.2%.
Switzerland Inflation Rate
Source: Bloomberg.
As a result, derivatives markets have significantly revised their expectations for the Swiss National Bank’s monetary policy. Current pricing implies a 56% probability of a rate hike in March, with the policy rate potentially reaching 0.5% by September.
According to Pantheon Macroeconomics, consumer prices are likely to continue rising faster than the SNB anticipates, giving the central bank greater scope to tighten monetary policy. The regulator may seize this opportunity to bring interest rates back above zero, creating a policy buffer that could prove valuable when monetary easing becomes necessary in the future.
The growing prospect of SNB monetary tightening is not the only factor supporting the franc. The US midterm elections are also weighing on the dollar. According to Crédit Agricole, the Democrats’ victory has exposed the greenback’s main vulnerability: its recent strength has been closely linked to the AI boom. Tighter regulation in this sector could undermine one of the dollar’s key sources of support.
USD/CHF bears will therefore be looking to capitalize on a period of potential US dollar weakness. However, several risks could undermine this bearish outlook. A breakdown in Middle East diplomacy could trigger an escalation of the conflict and revive the rally in Brent crude. Furthermore, Donald Trump retains the power to veto Democratic legislative initiatives aimed at tightening regulation of artificial intelligence.
Weekly Trading Plan for USD/CHF
A Republican defeat in the midterm elections is not necessarily a disaster for the US dollar. Its trajectory will ultimately be determined by developments in the Middle East. From a technical perspective, as long as the USD/CHF trades below 0.8120, the bearish bias remains intact, offering selling opportunities.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDCHF in real time mode
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