Swiss Franc Strengthens as Inflation Picks Up
The Swiss franc strenghened 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.
The Swiss franc strenghened 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.