Swiss Franc gains against US Dollar, but Fed-SNB divergence weighs

On Friday, the Swiss Franc gained against the US Dollar, but a divergence between the Federal Reserve and the Swiss National Bank (SNB) influenced the outcome. The USD/CHF pair slipped to around 0.8220, its lowest level since May 2025, after previously reaching a high of 0.8250 earlier in the week. Meanwhile, the US Dollar Index hit a seven-week high, reflecting a rebound in US Treasury yields following a brief pullback from multi-year peaks.

Treasury yields are bolstered by strong oil prices amid Middle East tensions, which maintain energy supply concerns. The Federal Reserve raised interest rates by 25 basis points to the 3.75%-4.00% range on Wednesday, signaling its first increase since 2023. Sixteen out of 18 officials anticipate further rate hikes this year. Kansas City Federal Reserve President Jeffrey Schmid supported the rate hike, citing inflation exceeding 3% and a balanced labor market.

Despite the decline, USD/CHF is on track for a fourth consecutive weekly gain, primarily due to Swiss Franc weakness rather than broader US Dollar strength. The interest-rate gap between the US and Switzerland could widen, making US Dollar-denominated assets more appealing and potentially weakening the Swiss Franc. Traders are now focusing on the SNB's next monetary policy decision, which could further impact the Swiss Franc's valuation.

The Swiss Franc is increasingly favored as a funding currency for carry trades, as the Bank of Japan's (BoJ) policy normalization and rising Japanese interest rates make the Yen less attractive. The SNB's interest rate decision, announced after each of its quarterly meetings, influences the Swiss Franc's performance. A hawkish SNB stance, with rate hikes, typically supports the Franc, while a dovish approach usually weakens it.