Swiss Franc Steady Near Three-Week Low

The Swiss franc weakened past 0.81 per USD, remaining near a three-week low, on a widening interest rate differential with the United States and selling pressure from new carry trades. A hawkish sentiment of the Bank of Japan and yen-buying interventions by Washington and Tokyo reduced the appeal of the yen for carry trades, leading traders to shift positions to other safe-haven currencies, such as the swiss franc. The swing pressures the currency as traders sell their franc loans for higher-yielding assets in other currencies. Contrasting with other central banks, the Swiss National Bank is expected to leave its key policy rate unchanged at 0% through year-end, the lowest among major economies. Providing an offsetting pressure, global oil prices breached the $100 mark as tensions in the Middle East escalate further, raising safe-haven demand.

The Swiss franc traded near $0.81 as traders weighed the prospect of higher inflation and tighter monetary policy from major central banks, alongside continued safe-haven demand. Swiss inflation doubled in August to 0.8% but the impact of higher energy prices is expected to be temporary, with electricity prices set to fall by around 4% from next year, according to the Swiss Federal Electricity Commission. Quarterly economic growth was confirmed at a 5-year high of 1.5%. On the monetary policy front, a Swiss Bankers Association survey showed that all bankers expect the SNB to keep its policy rate at 0% by year-end. Markets anticipated the first rate hike in June 2027, while most economists expect the first hike in early 2028. Meanwhile, speculation of further US-Japanese intervention in the foreing exchange market appears to have led carry trade investors to shift short positions to the swiss franc, as traders seek alternative safe-haven currencies as a funding vehicle.

The Swiss franc traded near $0.81, its lowest level since August 19th, amid growing inflation concerns that raised a hawkish sentiment. Swiss inflation doubled in August while quarterly economic growth accelerated to its highest level in nearly five years, raising prospects of an earlier hike by the Swiss National Bank. Previously, a Swiss Bankers Association survey showed that all bankers expect the SNB to keep its policy rate at 0% by year-end. Markets anticipated the first rate hike in June 2027, while most economists expect the first hike in early 2028. Meanwhile, speculation increased of further US-Japanese intervention in the foreign exchange market following a strenghened yen, while a potential shift in short positions from the yen to the Swiss franc could provide an offsetting pressure in the swiss currency, as traders seek alternative safe-haven currencies for carry trades.