Swiss Franc Remains Strong Amid Escalating Middle East Tensions

The Swiss franc was little changed at 0.8 per US dollar, remaining near its weakest level in over two months as investors assessed the latest policy decisions from the Swiss National Bank and the US Federal Reserve. The Swiss National Bank kept its policy rate at 0% for the fourth straight meeting, as expected, stating the current stance supports price stability and economic growth. Meanwhile, the central bank raised inflation forecasts for this year, 2027 and 2028, but kept growth projections unchanged. The SNB slightly adjusted its language, saying it is more willing to intervene in the foreign exchange market “if necessary.” Elsewhere, the US Federal Reserve unsurprisingly held rates steady, but signaled the possibility of a rate hike this year. On the geopolitical front, the US and Iran signed an interim agreement to end the war and reopen the Strait of Hormuz, though uncertainty persists as talks will continue toward a final deal.

The Swiss franc strengthened to 0.79 per US dollar, recovering from a two-month low as the dollar came under pressure following an interim peace agreement between the US and Iran. The agreement, which includes the lifting of the US blockade and the reopening of the Strait of Hormuz, is scheduled to be signed in Switzerland on Friday. However, investor caution persists as markets await additional details, particularly regarding the unresolved status of Iran’s nuclear program. Meanwhile, oil prices fell sharply, helping to ease inflation concerns and dampening expectations of further interest rate increases. Money markets currently anticipate that the Swiss National Bank will keep interest rates unchanged through the remainder of the year. On the economic front, Swiss producer and import prices declined by 0.4% in May, contrasting with market expectations for a 0.4% increase. Consumer sentiment also improved modestly, broadly meeting forecasts.

The Swiss franc traded at 0.79 per USD, near its weakest since early April, after softer-than-expected inflation data reduced expectations for a Swiss National Bank rate hike this month. Annual inflation in May held at 0.6%, its highest since December 2024 but below the 0.8% forecast. Inflation had been nearly flat at the start of the year but rose slightly after strikes on Iran in late February. Switzerland’s lower reliance on oil and gas, thanks to its Alpine hydropower and nuclear energy, shields it more than the eurozone. SNB Chairman Martin Schlegel noted on Wednesday that, despite recent inflation upticks, medium-term pressures remain largely unchanged. Investors now expect the bank to maintain its key rate at 0% through year-end. Meanwhile, investors monitored Middle East developments: Iran claimed it targeted a US command ship in the Gulf of Oman, the Republican-led House voted to halt US military action against Iran, and Israel and Lebanon agreed to a conditional ceasefire.