Swiss Franc gains as US Dollar weakens despite Fed Chair Warsh’s hawkish remarks
- USD/CHF falls as Jan Hatzius expects no Fed rate change unless upcoming inflation data surprises to the upside.
- Jackson Hole remarks lifted September US rate hike expectations from 35% to 57.5%.
- Swiss rates remain anchored, though markets price in potential hikes starting by early 2027.
USD/CHF holds losses after registering modest gains in the previous day, trading around 0.8090 during the Asian hours on Monday. The currency pair edges lower as the US Dollar (USD) weakens following comments from Goldman Sachs chief economist Jan Hatzius. Hatzius reiterated his expectation that the Federal Reserve (Fed) will hold interest rates steady in September. He argued that Federal Reserve Chair Kevin Warsh's hawkish tone at Jackson Hole would only translate into a rate hike if upcoming August CPI and PPI readings surprise to the upside, an outcome Goldman Sachs considers unlikely.
Warsh flags unfinished inflation work as financial conditions stay loose
Fed Chair Warsh delivered a notably more hawkish tone, with the FXS Speechtracker score at 7.4/10, above the 6.5/10 historical average, underscoring heightened concern on price stability. The insistence that the Fed must be confident underlying inflation is moving to the 2% PCE objective “or we have work to do,” combined with the view that financial conditions are not restrictive and credit and loan markets show few signs of policy restraint, points to a bias toward further tightening or at least a prolonged restrictive stance. Warsh’s emphasis that recent better-than-expected summer inflation data do not yet signal a meaningful change in underlying trends keeps the focus squarely on inflation risks, supportive of the Dollar and mildly negative for risk-sensitive assets.
Markets have quickly adjusted their expectations ahead of the Fed's next interest rate decision on September 15–16. According to the CME FedWatch tool, traders are now pricing in nearly a 57.5% chance of at least a 25 basis point rate hike next month, up sharply from 35% before Warsh’s speech.
The Swiss National Bank (SNB) held its key policy rate at 0% and is projected to maintain this level through 2027. The SNB reiterated its readiness to intervene in foreign exchange markets to limit excessive Swiss Franc appreciation. While most economists do not foresee a rate hike until early 2028, market pricing reflects odds of a hike as early as March 2027, potentially reinforcing the franc's appeal as a funding currency for carry trades.
Strategists at Brown Brothers Harriman expect Switzerland’s August inflation data to remain subdued, reinforcing the Swiss National Bank’s ability to stay on hold. BBH looks for “headline CPI … at 0.5% y/y vs. 0.4% in June, tracking slightly below the Swiss National Bank’s (SNB) forecast of 0.6% y/y in Q3,” while “core CPI is expected at 0.3% y/y for a fifth straight month.” In their view, the “bottom line” is that “the SNB has plenty of room to keep rates at 0.00% for some time, which is an ongoing drag for CHF,” with the Franc currently “the worst performing G10 currency so far this quarter.”
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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