Swiss Franc weakens across the board under pressure from low interest rates

• Swiss Franc on course for steep weekly losses as major central banks point to more tightening.
• Subdued inflation in Switzerland reduces the pressure on the SNB to increase interest rates.
• Broad US Dollar gains put USD/CHF on track to rise by over 2% this week.

With USD/CHF more than 2% higher this week ahead of the weekend, the Swiss Franc (CHF) ranks as the weakest major currency over the period. Growing expectations of additional interest rate rises in the US and elsewhere have reduced the appeal of the lower-yielding Franc. The broadly stronger US Dollar (USD) is adding to that pressure: USD/CHF is changing hands around 0.8395, close to levels last recorded in May 2025.

Swiss Franc remains exposed as SNB holds rates low

At 0%, the Swiss National Bank’s (SNB) policy rate remains among the lowest in the major economies. Although Swiss inflation has risen, it is still inside the SNB’s 0%-2% range, leaving policymakers with less incentive to increase borrowing costs. By contrast, rates have been raised this year by the Federal Reserve (Fed), European Central Bank (ECB), Bank of Canada (BoC) and Bank of England (BoE) in an effort to curb inflation. Price growth continues to exceed their respective targets. Policymakers therefore remain willing to tighten further while gauging the extent to which the Middle East energy shock is passing through to wages and other prices.

US Dollar reaches 19-month peak as Fed hike expectations strengthen

October CPI increased by 0.4% MoM and annual PPI inflation reached 6.5%, despite a smaller-than-expected monthly rise in producer prices. Against that backdrop, hawkish comments from Federal Reserve (Fed) officials this week have revived appetite for the US Dollar, with traders increasing their bets on further rate rises. The US Dollar Index (DXY), a measure of the Greenback against a basket of six major currencies, is trading close to 103.40, its highest reading since April 2025.

In pursuit of the central bank’s 2% inflation target, several Fed officials have argued this week that further rate rises are needed. The October CPI increase was 0.4% MoM, while annual PPI inflation rose to 6.5%, notwithstanding a monthly gain in producer prices that fell short of expectations.

Speaking on Friday, San Francisco Fed President Mary Daly said a rate increase would “in all likelihood” be necessary, adding that it was difficult to judge whether policy was sufficiently restrictive.

For Chicago Fed President Austan Goolsbee, the course of interest rates would depend on inflation; he said the Fed still “has work to do” to reduce it. Those views were in line with remarks earlier this week by Dallas Fed President Lorie Logan, who urged at least two further quarter-point increases.

A December increase of at least 25 basis points (bps) is fully priced in by traders, according to the CME FedWatch Tool. Such a move would take the Fed’s target range to 4.00%-4.25%.

A 50 bps increase is also assigned a small probability by markets. Ahead of Tuesday’s release, Fed Governor Christopher Waller had said a half-point rise could be justified if October core CPI increased by around 0.3% or more; the figure was 0.3%. Another rate rise in the first quarter of 2027 is also reflected in traders’ pricing.