Swiss Franc Weakens to 16-Month Low

The Swiss franc weakened past 0.83 per USD, reaching a 16-month low amid a widening interest rate differential with other major economies. Contrasting with other central banks, the Swiss National Bank left its key rate unchanged at 0% at its September meeting, maintaining a cautious stance while also scaling back its threat of intervention to prevent excessive currency appreciation driven by safe-haven demand amid the conflict in the Middle East. Although markets still expect the SNB to deliver a rate hike by year-end and roughly three hikes by the end of 2027, many analysts view these expectations as overdone. As such, while holding the lowest-yielding major currency, its appeal as a funding source for carry trades has increased. Carry trades involve investors borrowing in a low-yielding currency to fund the purchase of a currency with higher yields, putting downward pressure on the currency.

The Swiss franc weakened past 0.82 per USD, its lowest level since May of 2025, following the Swiss National Bank’s monetary policy decision. Contrasting with other central bank's, the SNB left its key rate unchanged at 0% at its September meeting, citing elevated uncertainty in the Middle East that keeps global oil prices elevated. Still, Swiss economic growth remained resilient, supported by a weaker Swiss franc, while medium-term inflationary pressures increased only slightly. Policymakers also reiterated their preference for foreign-exchange market interventions, although doubts remain if whether to weaken or support it. Elsewhere, a widening interest rate differential with the US, amid growing expectations of further Fed rate hikes, could increase the franc’s appeal as a carry-trade funding currency. As traders shift toward currencies with exchange-rate stability and low borrowing costs, the selling of franc loans for higher-yielding assets puts downward pressure on the currency.

The Swiss franc weakened past 0.82 per USD, hitting its lowest level since May of 2025, on a widening interest rate differential with the US and selling pressure from new carry trades. The Federal Reserve's first rate hike in three years boosted greenback demand, while the Bank of Japan's policy tightening and a historic Washington–Tokyo intervention to support the yen reduced the currency's appeal as a carry-trade funding source. Traders pivoted to alternatives offering exchange-rate stability and low borrowing costs, such as the Swiss franc, selling franc loans for higher-yielding assets and pressuring the currency lower. Contrasting with other central banks, the Swiss National Bank is expected to hold its policy rate at 0% at its September 24th meeting, the lowest among major economies, favoring interventions to cap excessive franc strength. Offsetting this downward pressure, persistent geopolitical tensions threatening energy supplies lifts safe-haven demand.