Swiss Franc trades near 16-month lows as US Dollar surges on hawkish Fed expectations

USD/CHF extends its gains for the third consecutive day, trading around nearly 16-month highs of 0.8296 during Asian hours on Friday. The currency pair appreciates as the US Dollar (USD) strengthens, driven primarily by hawkish signals from Federal Reserve officials.

Elevated oil prices and robust US economic data have stoked inflation concerns, reinforcing market expectations that the Fed may tighten its monetary policy even further. Reflecting this shift, the CME FedWatch Tool indicates that the likelihood of an October benchmark rate hike has jumped to nearly 67.5%, marking a significant increase from 55.4% a week prior and just 11% a month ago.

The Swiss Franc (CHF) has weakened following the Swiss National Bank’s (SNB) latest monetary policy decision. In contrast to other central banks, the SNB opted to leave its key interest rate unchanged at 0% during its September meeting. The central bank cited elevated uncertainty in the Middle East, which continues to keep global oil prices high, as a primary factor in its decision to pause.

Despite this holding pattern, Swiss economic growth has remained resilient, largely supported by the weaker franc, while medium-term inflationary pressures have increased only slightly. SNB policymakers also reiterated their willingness to utilize foreign-exchange market interventions, though uncertainty remains in the market regarding whether their future actions will aim to weaken or support the currency.