Swiss Franc strengthens as US Dollar falls on fading Fed rate hike expectations
- USD/CHF drops as weak US retail sales and cooling inflation lower September rate hike odds to 35%.
- CME FedWatch tool suggests traders are now pricing in just a 35% chance of a rate hike in September.
- The Swiss National Bank kept its policy rate at 0% and is expected to hold rates there through 2027.
USD/CHF depreciates after registering modest gains in the previous day, trading around 0.8120 during the Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) weakens amid easing expectations of a US interest rate hike next month. Recent economic data showed that US Retail Sales dropped in July for the first time in nine months, compounding concerns after unexpected job losses last month and tame CPI inflation figures.
While the Fed left interest rates unchanged at its last meeting, three officials dissented in favor of a rate hike, leaving traders looking to the upcoming minutes for deeper insight into the division within the central bank. According to the CME FedWatch tool, traders now price in just a 35% chance of a rate hike at the Fed’s September meeting, down significantly from 47% a month earlier.
Switzerland’s economic growth, excluding major sporting events, accelerated sharply to 1.5% quarter-on-quarter in the second quarter of 2026. This momentum was reinforced by foreign exchange interventions, which helped protect Swiss exporters by curbing safe-haven capital flows into the Swiss Franc and preventing excessive currency appreciation.
Meanwhile, inflationary pressures continued to ease, with Swiss inflation slowing to 0.4% in July, its lowest level in four months. In response, the Swiss National Bank (SNB) maintained its policy rate at 0% during its latest meeting and is expected to hold interest rates at this level through 2027, treating any further rate cuts as a contingency rather than the baseline path. While financial markets are pricing in a rate hike as early as March 2027, most economists anticipate the first increase will occur in early 2028.
Analysts at Rabobank highlighted that, “for years, the Swiss central bank has struggled with the impact of haven flows into the CHF,” noting that the recent bout of Swiss Franc softness is likely a welcome development for the SNB after its prolonged battle against persistent inflows.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.