Swiss Franc remains under pressure as Fed-SNB interest rate gap widens

• The Swiss franc underperforms as a hawkish Federal Reserve outlook supports the US Dollar.
• The Swiss National Bank’s 0% policy rate keeps the franc attractive as a funding currency for carry trades.
• Next week’s US PCE inflation, ISM PMI and Nonfarm Payrolls data could shape Fed hike bets.

USD/CHF holds firm on Friday even as the US Dollar (USD) pulls back slightly after a strong weekly rally. The move has done little to lift the Swiss franc (CHF), with the pair hovering around 0.8285, near levels last seen in May 2025. USD/CHF is on track for a fourth consecutive weekly gain.

The Swiss franc has underperformed most major currencies this year as the hawkish Federal Reserve (Fed) outlook supports the US Dollar. Meanwhile, the Swiss National Bank’s (SNB) 0% policy rate has also increased the appeal of using the franc as a funding currency for carry trades, adding to selling pressure on the currency.

At its monetary policy assessment on Thursday, the SNB left its policy rate unchanged and said its current stance was appropriate for keeping inflation within a range consistent with price stability while supporting economic development. The central bank acknowledged that inflation had risen because of higher Oil prices, although medium-term inflationary pressure had increased only slightly. It also raised its inflation forecast.

By contrast, the Fed raised interest rates by 25 basis points last week, taking the federal funds rate to 3.75%-4.00%. Its updated projections showed that 16 of 18 policymakers expect at least one more increase this year.

Fed officials also kept the door open to additional tightening. New York Fed President John Williams said on Thursday, “We need to get inflation back to target in a timely manner,” adding that it is “reasonable to see another rate hike by end of the year.”  The increasingly hawkish stance has lifted the US Dollar and pushed Treasury yields to multi-year highs.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 101 after reaching 101.40 on Thursday, its highest level in nearly two months. The benchmark 10-year US Treasury yield holds near 5.17%, below Thursday’s peak of 5.22%, its highest level since 2007.

The CME FedWatch Tool shows around a 66% probability of a rate increase at the October meeting. Traders will next focus on the US Personal Consumption Expenditures (PCE) inflation report, the ISM Manufacturing Purchasing Managers’ Index (PMI), and the Nonfarm Payrolls (NFP) report, due next week.

Middle East tensions also remain in focus as markets monitor US-Iran developments. Reuters reported that a senior Iranian official said Tehran would not make nuclear concessions and that the Strait of Hormuz would remain closed until the necessary conditions were met.