Hawkish Fed outlook fails to erode Swiss Franc gains against US Dollar

• Bets on a December Fed rate rise lend support to the US Dollar, potentially helping USD/CHF recover.
• A larger 50-basis-point Federal Reserve rate increase in December carries a 13% probability in market pricing.
• With inflation contained and oil prices declining, the Swiss National Bank is expected to leave rates at 0%.

Stronger-than-expected US Consumer Price Index (CPI) inflation figures have pushed the Federal Reserve policy outlook in a more hawkish direction, lending support to the US Dollar (USD) and potentially helping USD/CHF recover. For now, however, the pair is edging down after two consecutive days of advances, trading near 0.8330 in Thursday’s Asian session.

Earlier this week, Fed Governor Christopher Waller said he would back a quarter-point increase, or even a half-point rise should inflation deteriorate. His comments have prompted traders to increase their bets on a December rate rise. The CME FedWatch Tool now puts the market-implied probability of a December rate increase at 87%, with nearly a 13% chance assigned to a larger 50-basis-point move.

Dollar draws support from Fed independence and lasting safe-haven appeal

Reduced concerns over interference with monetary policy have improved the USD’s backdrop, according to Rabobank strategists, who say that “diminished fears about political interference on the Fed is a supportive factor for the USD.” They also point to the market response “at the start of the Gulf war,” when “strong demand for the USD undermined last year’s claims that the USD’s had lost at least part of its safe haven value,” as evidence of the currency’s defensive qualities. The strategists see the Dollar’s safe-haven standing as structurally entrenched, its attraction “linked to its embedded position in global payments systems, which could take decades to shake.”

For the Swiss National Bank (SNB), the broad expectation is that interest rates will remain at 0% at its forthcoming meeting. Markets allow for a possible increase by early 2027, whereas most economists expect the first rise to come nearer the end of 2027.

With price pressures still contained, SNB Chairman Schlegel said the central bank had fulfilled its medium-term price stability mandate. He also noted that falling oil prices were further reducing inflation risks.