Swiss Franc weakens as US Dollar strengthens on Fed rate hike bets
- USD/CHF rises as stronger US jobs data boosted expectations of an imminent September Federal Reserve interest rate hike.
- Nonfarm payrolls surged by 162,000, while unemployment held steady at 4.1% and wage growth slowed moderately.
- Growing Swiss inflation and strong economic growth are driving expectations of an earlier SNB rate hike.
USD/CHF gains ground for the second successive day, trading around 0.8110 during the Asian hours on Monday. The pair appreciates as the US Dollar (USD) recovers its daily losses, driven by stronger-than-expected United States (US) employment data that fuels expectations of an imminent Federal Reserve interest rate hike.
According to the US Bureau of Labor Statistics, August Nonfarm Payrolls rose by 162,000, significantly outperforming the 56,000 forecast. Meanwhile, the unemployment rate held steady at 4.1%, and annual wage growth slowed less than anticipated to 3.1%. Following these figures, traders rapidly priced in tighter monetary policy, with the CME FedWatch tool indicating a 58.3% probability of a 25-basis-point Fed rate increase in September.
Additionally, the Greenback receives support as rising crude oil prices have stoked fears of rekindled inflationary pressures following a geopolitical escalation between the US and Iran over the weekend. The conflict intensified after the US targeted three Iranian tankers in response to missile attacks on its warships, leading Tehran to establish a new restricted zone around the Strait of Hormuz.
The Swiss Franc (CHF) loses its appeal as a funding currency for carry trades, largely driven by growing inflation concerns that have fueled a hawkish market sentiment. Swiss inflation doubled in August while quarterly economic growth accelerated to its highest level in nearly five years. These surprisingly robust economic indicators have heightened expectations that the Swiss National Bank (SNB) may be forced to hike interest rates sooner than previously anticipated.
Analysts at Brown Brothers Harriman highlight that the latest Swiss data delivered a clear upside surprise, with headline CPI rising to “0.8% y/y (consensus: 0.5% y/y) vs. 0.4% in July.” They note this leaves headline inflation “the highest since September 2024 and above the SNB’s Q3 forecast of 0.6% y/y,” reinforcing expectations that the SNB may need to stay vigilant on price pressures. BBH also points out that underlying price dynamics firmed, as “core CPI inflation also surprised to the upside at 0.4% y/y (consensus: 0.3%), following four straight 0.3% readings,” underscoring a gradual but notable pickup in core inflation momentum.
Despite these hawkish economic signals, institutional forecasts remain significantly more cautious regarding the immediate path of monetary policy. A recent Swiss Bankers Association survey revealed that all responding bankers expect the SNB to hold its policy rate steady at 0% through the end of the year. Financial markets are currently pricing in the first rate hike for June 2027, whereas the majority of economists project that the central bank will defer its first rate increase until early 2028.
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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