Swiss Franc Hits 2-Month High

The Swiss franc strengthened to 0.81 per USD, holding close to its highest level since mid-September, as a Democratic sweep raised expectations of tighter regulation of the AI buildout and lifted safe-haven demand. It could also lead to a political gridlock and raised the prospect of fiscal restraint in the US. Higher safe-haven demand could prompt traders to unwind franc-funded carry trades, which had benefited from the widening interest rate differential with the US and weighed heavily on the currency. Swiss borrowing costs have remained at the world's lowest for over a year, making the franc an attractive funding currency for higher-yielding investments. The SNB is not expected to raise rates in the near term, further supported by Chair Schlegel’s remarks which reinforced that Swiss inflationary pressures remain contained. Swiss inflation rose in October on higher energy costs and a weaker franc, although the currency's subsequent appreciation could ease imported cost pressures.

The Swiss franc strengthened to 0.81 per USD, its highest level since early September, as the Democratic Party's victories in both chambers of the US Congress weakened the dollar and boosted demand for safe-haven currencies. Adding to support, Swiss inflation climbed to a nearly three-year high of 1.5% in October, driven by higher imported energy costs. While inflation remains within the SNB’s 0%-2% target range, its acceleration has raised expectations of an earlier rate hike, with markets anticipating a move in early 2027. Meanwhile, increased safe-haven demand could encourage investors to unwind carry trades, supporting further franc gains. Previously, the wide interest rate differential with the US had weighed on the currency, as Switzerland's 0% borrowing costs made the franc an attractive funding currency for investments in higher-yielding assets.

The Swiss franc strengthened to 0.81 per USD, its highest level in three weeks following a higher-than-expected inflation reading. Swiss inflation climbed to a nearly three-year high of 1.5% in October, driven by higher energy prices and a weaker franc. While still within the SNB’s 0%-2% target range, inflation moved closer to its upper limit, raising expectations of an earlier SNB rate hike. While economists expect rates to remain unchanged through 2027, markets are anticipating a hike in early 2027. Policymakers have also scaled back threats of currency intervention. Still, the franc’s safe-haven appeal could support further gains and trigger an unwinding of carry trades that had weighed on the franc amid a widening interest rate differential with the US. With Fed rates expected to remain elevated and Swiss borrowing costs at 0%, the world's lowest, the franc remains an attractive funding currency. Borrowing francs to invest in higher-yielding assets adds to selling pressure.