USD/CHF hits multi-week lows at 0.7950 amid higher hopes of Fed easing

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The US Dollar trades lower for the second consecutive day against the Swiss Franc on Monday.

The US Dollar extends losses to 0.7950, weighed by hopes of a more aggressive Fed easing cycle.
Weak US Labour data has raised speculation of a 50 bps Fed cut next week.
SNB President Schlegel has cooled expectations of negative interest rates.

The US Dollar trades lower for the second consecutive day against the Swiss Franc on Monday. The soft Payrolls report seen on Friday keeps weighing on the US Dollar, as investors ramp up their bets for Federal Reserve rate cuts in the coming months.

US Nonfarm Payrolls data confirmed a sharp slowdown in job creation in August, with only 22K new payrolls, below market expectations of a 75K reading. Beyond that, while June’s reading was released to -13K, posting the first net loss in employment since the height of the pandemic in 2020.

These figures practically confirm a Fed rate cut next week and have raised speculation about a 50 bps cut. The CME Fed watch tool shows a 19% chance of a jumbo cut after the September 16 and 17 meeting, a possibility that was discarded before the NFP release.

In Switzerland, the SNB president, Martin Schlegel, calmed hopes of negative interest rates, stating that he has a high bar on further rate cuts, due to the undesirable side effects of negative interest rates for savers and pension funds. These comments have provided additional support to the Swissie.

SNB FAQs

What is the Swiss National Bank?

The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.

How does the Swiss National Bank interest-rate policy affect the Swiss Franc?

The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive 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.

Does the Swiss National Bank intervene in the forex market?

Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.

When does the Swiss National Bank Governing Council decide on monetary policy?

The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.