Low interest rates weigh on Swiss Franc across the board

• Swiss Franc faces a steep weekly loss as leading central banks point to more monetary tightening.
• With Swiss inflation subdued, the SNB faces less pressure to increase interest rates.
• Over 2% weekly gain in sight for USD/CHF as the US Dollar strengthens broadly.

More than 2% has been added to USD/CHF this week. Heading into the weekend, the pair trades around 0.8395, close to levels last recorded in May 2025. The Swiss Franc (CHF) ranks last among major currencies this week. Growing expectations of additional interest rate increases in the US and other economies have reduced the appeal of the lower-yielding Franc. A broadly stronger US Dollar (USD) is adding to the pressure.

0% SNB policy rate leaves Swiss Franc exposed

At 0%, the Swiss National Bank (SNB) policy rate remains among the lowest in major economies. Although Swiss inflation has accelerated, it is still inside the SNB's 0%-2% range, reducing the need for policymakers to increase rates. In contrast, the Federal Reserve (Fed), European Central Bank (ECB), Bank of Canada (BoC) and Bank of England (BoE) have each increased rates this year to curb inflation. Price growth remains above their individual targets. Policymakers are therefore keeping further tightening on the table while gauging the extent to which the Middle East energy shock passes into wages and other prices.

19-month high for US Dollar as Fed hike expectations strengthen

Near 103.40, the US Dollar Index (DXY) stands at its strongest since April 2025. The index measures the Greenback against six major currencies. Demand for the US Dollar has revived following hawkish comments this week from Federal Reserve (Fed) officials, with traders increasing their bets on additional rate rises. October CPI increased 0.4% MoM. Annual PPI inflation reached 6.5%, despite a smaller-than-expected monthly increase in producer prices.

With the central bank seeking to return inflation to its 2% target, several Fed officials have argued this week for additional rate rises. A 0.4% MoM increase was recorded in October CPI, while annual PPI inflation advanced to 6.5%. The monthly rise in producer prices nevertheless fell short of expectations.

Further rate increases would “in all likelihood” be necessary, San Francisco Fed President Mary Daly said on Friday. She added that it was difficult to judge whether policy was sufficiently restrictive.

The course of interest rates would depend on inflation, according to Chicago Fed President Austan Goolsbee, who said the Fed still “has work to do” to reduce it. Both officials' comments were in line with those made earlier this week by Dallas Fed President Lorie Logan. She advocated at least two additional quarter-point increases.

At least a 25-basis-point (bps) increase in December is fully priced in by traders, according to the CME FedWatch Tool. Such a move would take the Fed's target range to 4.00%-4.25%.

A 50 bps increase is also assigned a small probability by markets. Before Tuesday's release, Fed Governor Christopher Waller said a half-point rise could be justified if October core CPI increased by around 0.3% or more. The actual reading was 0.3%. A further rate rise in the first quarter of 2027 is also priced in by traders.