Swiss Franc slips as US Dollar holds near yearly high after mixed PMI data
- USD/CHF edges higher as broad US Dollar strength outweighs softer Fed rate-hike expectations.
- A sharp decline in the Euro helps the US Dollar climb to a fresh year-to-date high.
- Safe-haven demand cushions the Swiss Franc, although low interest rates remain a headwind.
USD/CHF edges higher on Monday, snapping a two-day losing streak as the US Dollar (USD) climbs to a fresh year-to-date high. A sharp decline in the Euro (EUR) lifts the Greenback, even as traders scale back expectations of another Federal Reserve (Fed) interest-rate hike in October following softer -than-expected US employment data. At the time of writing, USD/CHF trades around 0.8316, below last week’s peak of 0.8382, its highest level since May 2025.
The Euro remains under heavy selling pressure as concerns over France’s public finances and political gridlock spread across European markets. EUR/USD trades around 1.1189 after falling to 1.1161 earlier in the day, its lowest level in over a year. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, holds near 102.32 after touching 102.53.
Fresh business activity data released on Monday showed that the US economy remains resilient. The final S&P Global Services Purchasing Managers’ Index (PMI) was revised slightly higher to 58.8 in September from the preliminary reading of 58.7. The ISM Services PMI eased to 54.9 from 55.4, slightly below the market forecast of 55. Both surveys remain comfortably above the 50 mark separating expansion from contraction.
The figures follow last week’s weaker-than-expected US Nonfarm Payrolls (NFP) report. According to the CME FedWatch Tool, traders now price in only around a 20% chance that the US central bank will raise interest rates at its October 27-28 meeting, down from nearly 70% a week ago.
However, persistent inflation risks keep expectations of a rate hike later this year alive as policymakers remain committed to bringing inflation back towards the central bank’s 2% target. Oil-related price pressures also complicate the Fed’s task of returning inflation sustainably to target. As a result, US Treasury yields remain elevated near multi-year highs, lending additional support to the Greenback. The benchmark 10-year yield holds near 5.30%, just below last week’s peak of 5.34%, its highest level since 2002.
Still, the rise in US Treasury yields is not solely driven by the Fed outlook. It also reflects growing investor concerns over the country’s debt burden and broader fiscal position, which could limit the Greenback’s gains.
Fiscal concerns in both the United States and Europe increase the Swiss Franc’s (CHF) appeal as a safe-haven currency, supported by Switzerland’s stronger fiscal position and lower debt burden. However, Switzerland’s wide interest-rate gap with other major economies, along with the Swiss National Bank’s (SNB) readiness to intervene in the currency market, remains a headwind for the Franc.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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