Swiss Franc gains as Fed rate pause bets weigh on US Dollar
- USD/CHF drops as the Fed's neutral tone drastically reduced expectations for an October interest rate hike.
- Markets now price in an 83.9% chance the Federal Reserve holds rates steady this month.
- Low Swiss borrowing costs keep the franc highly appealing for carry trade funding.
USD/CHF depreciates after opening at a bullish gap, remaining in positive territory and trading around 0.8240 during Asian hours on Monday. The currency pair lost ground as the US Dollar (USD) came under pressure from declining expectations of an October interest rate hike by the Federal Reserve.
Speaking at an International Monetary Fund event on Friday, Fed Chairman Kevin Warsh stated that he does not prejudge monetary policy decisions, leaving markets without a clear direction ahead of the central bank's upcoming October 27–28 meeting.
As a result of these neutral remarks, expectations for a rate increase dropped sharply. According to data from the CME FedWatch Tool, traders are now pricing in an 83.9% chance that the central bank will keep interest rates unchanged later this month, a substantial rise from the 49% probability recorded just a month ago.
Meanwhile, the Swiss National Bank (SNB) is widely anticipated to hold its policy rate at 0% through the end of the year, with policymakers dialing back threats of active currency intervention. Because Swiss borrowing costs have remained the lowest in the world for over a year, the franc continues to maintain its strong appeal as a preferred funding currency for carry trades.
USD/CHF downside momentum leaves UOB looking to 0.8200
Strategists at UOB Group note that the bearish bias in USD/CHF has intensified more quickly than they had anticipated. They recall that in their 1–3 week view last Friday (16 Oct, spot at 0.8280), they had highlighted that “downward momentum is building and if USD closes below 0.8245, it could decline toward 0.8225,” adding that “the odds of USD closing below 0.8245 will remain intact as long as it holds below the ‘strong resistance’ level, now at 0.8350.” Instead, they concede, “we did not expect downward momentum to strengthen so quickly, as USD plummeted to a low of 0.8215 and closed at 0.8239 (-0.34%).” Looking ahead, UOB now judges that “from here, USD could decline further to 0.8200,” while on the topside, “the ‘strong resistance’ is now at 0.8300.”
Technical Analysis:
In the daily chart, USD/CHF trades at 0.8240, holding in a neutral-to-capped stance as it sits above the 50-day Exponential Moving Average (EMA) but below the shorter nine-day EMA. This configuration suggests the recent pullback is consolidating rather than trending decisively, while the 14-day Relative Strength Index (RSI) around 47 hints at fading upside momentum after prior overbought readings, leaving the pair vulnerable to further mean reversion if buyers fail to reclaim nearby resistance.
On the topside, immediate resistance is located at the nine-day EMA around 0.8288, where a daily close higher would open the door to a stronger recovery phase. On the downside, initial support is provided by the 50-day EMA near 0.8213; a break beneath this floor would reinforce the nascent bearish bias and expose deeper losses toward prior swing lows not visible in the current indicator set.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
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