Swiss Franc remains under pressure as Fed-SNB interest rate gap widens

The Swiss franc continues to struggle as the difference between US Federal Reserve and Swiss National Bank interest rates widens. The USD/CHF pair is currently hovering around 0.8285, near a level last seen in May 2025, despite a slight pullback in the US Dollar after a strong weekly rally. This lack of strength for the Swiss franc contrasts with its underperformance compared to most major currencies this year, driven by the hawkish Federal Reserve outlook that supports the US Dollar.

Meanwhile, the Swiss National Bank's unchanged 0% policy rate has made the franc an attractive currency for carry trades, contributing to selling pressure. The SNB acknowledged inflation's rise due to higher oil prices, though medium-term inflationary pressure increased only slightly, and raised their inflation forecast. In contrast, the Fed raised interest rates by 25 basis points last week, bringing the federal funds rate to 3.75%-4.00%, with 16 out of 18 policymakers expecting at least one more increase this year.

Fed officials also signaled a potential for additional tightening. New York Fed President John Williams stated that getting inflation back to target in a timely manner is "reasonable to see another rate hike by end of the year." The increasing hawkish stance of the Fed has bolstered the US Dollar and driven Treasury yields to multi-year highs, with the US Dollar Index trading around 101, its highest level in nearly two months.