Swiss Franc weakens as US Dollar strengthens on Fed rate hike bets

USD/CHF gains ground for the second successive day, trading around 0.8110 during the Asian hours on Monday. The pair appreciates as the US Dollar (USD) recovers its daily losses, driven by stronger-than-expected United States (US) employment data that fuels expectations of an imminent Federal Reserve interest rate hike.

According to the US Bureau of Labor Statistics, August Nonfarm Payrolls rose by 162,000, significantly outperforming the 56,000 forecast. Meanwhile, the unemployment rate held steady at 4.1%, and annual wage growth slowed less than anticipated to 3.1%. Following these figures, traders rapidly priced in tighter monetary policy, with the CME FedWatch tool indicating a 58.3% probability of a 25-basis-point Fed rate increase in September.

Additionally, the Greenback receives support as rising crude oil prices have stoked fears of rekindled inflationary pressures following a geopolitical escalation between the US and Iran over the weekend. The conflict intensified after the US targeted three Iranian tankers in response to missile attacks on its warships, leading Tehran to establish a new restricted zone around the Strait of Hormuz.

The Swiss Franc (CHF) loses its appeal as a funding currency for carry trades, largely driven by growing inflation concerns that have fueled a hawkish market sentiment. Swiss inflation doubled in August while quarterly economic growth accelerated to its highest level in nearly five years. These surprisingly robust economic indicators have heightened expectations that the Swiss National Bank (SNB) may be forced to hike interest rates sooner than previously anticipated.

Analysts at Brown Brothers Harriman highlight that the latest Swiss data delivered a clear upside surprise, with headline CPI rising to “0.8% y/y (consensus: 0.5% y/y) vs. 0.4% in July.” They note this leaves headline inflation “the highest since September 2024 and above the SNB’s Q3 forecast of 0.6% y/y,” reinforcing expectations that the SNB may need to stay vigilant on price pressures. BBH also points out that underlying price dynamics firmed, as “core CPI inflation also surprised to the upside at 0.4% y/y (consensus: 0.3%), following four straight 0.3% readings,” underscoring a gradual but notable pickup in core inflation momentum.

Despite these hawkish economic signals, institutional forecasts remain significantly more cautious regarding the immediate path of monetary policy. A recent Swiss Bankers Association survey revealed that all responding bankers expect the SNB to hold its policy rate steady at 0% through the end of the year. Financial markets are currently pricing in the first rate hike for June 2027, whereas the majority of economists project that the central bank will defer its first rate increase until early 2028.