Swiss Franc Weakens to 17-Month Low

The Swiss franc weakened toward 0.84 per USD, reaching its lowest level in seventeen months following stronger-than-expected US inflation data that raised bets of a rate hike by the Federal Reserve in October and boosted demand for the greenback. In contrast, the Swiss National Bank is expected to leave its policy rate unchanged at 0%, while its Vice Chairman Martin said no adjustment was currently needed, citing low and stable inflation and limited spillover risks, as the Swiss economy was working "very well". Policymakers have also scaled back threats of currency intervention. Swiss borrowing costs have remained at the world’s lowest for over a year, increasing it’s appeal as a funding source for carry trades as interest-rate differentials with other major economies widen. As traders take short positions, the selling pressure of franc-loans weakens the currency.

The Swiss franc weakened to 0.83 per USD, its lowest level in a week, remaining under pressure from short positions amid expectations of further monetary tightening across other major economies. Contrasting with other central bank's, the Swiss National Bank kept its key rate unchanged at 0% at its September meeting, while its Vice Chairman Martin said no adjustment was currently needed, citing low and stable inflation and limited spillover risks, as the Swiss economy was working "very well". Policymakers have also scaled back threats of currency intervention. Swiss borrowing costs have remained at the world’s lowest for over a year, increasing it’s appeal as a funding source for carry trades as interest-rate differentials with other major economies widen. As traders take short positions, the selling pressure of franc-loans weakens the currency. However, safe-haven demand amid concerns over debt sustainability in its European peers provides some support, posing a risk to carry trades.

The Swiss franc weakened to 0.83 per USD as investors favored the greenback amid expectations that the Federal Reserve will maintain a tighter policy stance, while the Swiss National Bank is widely expected to keep rates unchanged. Although weaker-than-expected US jobs data reduced expectations of a Fed hike this month, markets still anticipate another increase in December and at least one more in early 2027. Meanwhile, economists expect the SNB to keep its policy rate at 0% over the coming years, despite markets pricing in up to three hikes next year. Swiss inflation rose to 1.0% in September, driven by higher energy costs and reaching the midpoint of the SNB’s target range. However, safe-haven demand for the franc, amid higher oil prices and French fiscal concerns, is expected to limit imported inflation and keep core inflation subdued. The franc also benefits from Switzerland’s current-account and budget surpluses, a credible central bank, and a highly liquid currency market.