Swiss Franc Stays Weak on Diverging Rate Outlooks
The Swiss franc weakened past 0.83 per USD, close to its lowest level since May of 2025, amid rising expectations of another Fed rate hike, which would further widen the interest rate differential between the US and Switzerland. Stronger-than-expected inflation and labour report in the US lifted expectations of further Fed hikes and boosted the greenback. By contrast, Swiss borrowing costs are expected to remain at 0%, the world's lowest, supporting the franc's appeal as a funding currency for carry trades, where investors pursue higher-yielding assets abroad. While the SNB has dialled down its threat of currency interventions, officials reiterated to lawmakers on Wednesday they stand ready to intervene if necessary to counter sharp appreciation. Nevertheless, the franc's renewed safe-haven status amid worries over a eurozone sovereign debt crisis and risks regarding AI erodes carry trade returns and is prompting an unwinding of these positions, adding upward pressure on the currency.
The Swiss franc weakened past 0.83 per USD, close to its lowest level since May of 2025, amid rising expectations of another Fed rate hike, which would further widen the interest rate differential between the US and Switzerland. Stronger-than-expected inflation and labour report in the US lifted expectations of further Fed hikes and boosted the greenback. By contrast, Swiss borrowing costs are expected to remain at 0%, the world's lowest, supporting the franc's appeal as a funding currency for carry trades, where investors pursue higher-yielding assets abroad.
While the SNB has dialled down its threat of currency interventions, officials reiterated to lawmakers on Wednesday they stand ready to intervene if necessary to counter sharp appreciation. Nevertheless, the franc's renewed safe-haven status amid worries over a eurozone sovereign debt crisis and risks regarding AI erodes carry trade returns and is prompting an unwinding of these positions, adding upward pressure on the currency.