Swiss Franc slips against the US Dollar on diverging monetary policy expectations
- USD/CHF climbs to its highest level since June 2025, extending its advance for a sixth consecutive day.
- The Swiss Franc slips after Bloomberg reports the SNB may maintain zero interest rates through 2027.
- Markets await the Federal Reserve's interest rate decision on Wednesday.
USD/CHF climbs to fresh highs since June 2025 on Monday after Bloomberg reported that the Swiss National Bank (SNB) could keep its policy rate at zero until the end of 2027. The SNB later declined to comment on the report, according to Reuters. At the time of writing, the pair trades around 0.8187, extending its gains for a sixth consecutive day.
Swiss inflation remains subdued and comfortably within the SNB’s 0%-2% price-stability range. Elevated Oil prices since the US-Iran war began have increased near-term inflation risks, but the impact has been far more contained in Switzerland than in the United States.
The Bloomberg report noted that the outlook is based mainly on current inflation forecasts and assumes no major new shocks, citing people familiar with the thinking inside the central bank.
Diverging monetary policy expectations keep USD/CHF tilted to the upside in the near term. While the SNB is expected to keep rates at zero, traders increasingly expect the Federal Reserve (Fed) to raise interest rates later this year to curb inflation.
The Fed announces its monetary policy decision on Wednesday and is widely expected to leave interest rates unchanged at 3.50%-3.75%. However, traders still price in a 33% chance of an immediate hike, while the probability of a rate increase in September stands near 81%, according to the CME FedWatch Tool.
The wide interest-rate gap between the two countries favours the US Dollar (USD). Meanwhile, the Greenback has also emerged as the preferred safe-haven currency during the US-Iran war, while the SNB’s readiness to curb excessive strength in the Swiss Franc limits demand for the currency.
A temporary pause in attacks between the United States and Iran initially weighed on the US Dollar earlier in the day. However, the optimism faded as the prospects of a peace agreement appear slim.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 101.47, recovering from an intraday low of 101.12.
SNB FAQs
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.
The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive 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.
Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.
The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.