Swiss Franc holds its stronger position as softer safe-haven demand puts US Dollar under pressure

USD/CHF retreats as reduced Middle East tensions weaken demand for safe havens and lower expectations of a Fed rate hike.
Selling pressure on the CHF increases as Switzerland’s low interest rates encourage its use to fund investments in higher-yielding assets.
With inflation stable, the Swiss National Bank is expected to maintain rates at 0%, putting potential rate increases on hold until 2027.

Pressure on the US Dollar (USD) is keeping USD/CHF on the back foot, with the pair trading near 0.8220 in Friday’s Asian session as losses extend into a third consecutive day. Optimism over US-led diplomatic initiatives has reduced demand for safe havens, weighing on the Dollar.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Expectations of a Federal Reserve rate increase at the forthcoming December meeting have softened as easing Middle East tensions alleviate concerns about disruptions to oil supplies and wider inflationary pressures. The CME FedWatch Tool puts the probability of a 25-basis-point hike at approximately 75%, based on traders’ pricing, notably below the 84.2% recorded a day earlier.

Crude oil prices, meanwhile, steadied after reports that US Vice President JD Vance had reached out to Mohsen Rezaei, Secretary of Iran's Supreme National Security Council, to restart peace negotiations. US President Donald Trump approved the diplomatic initiative and highlighted Iran’s need for essential supplies and medical assistance.

Persistent weakness in the Swiss Franc (CHF), however, may restrict further declines in USD/CHF. A widening interest rate gap with the United States is encouraging carry trades and keeping the CHF under selling pressure. With Swiss borrowing costs still the lowest in the world, the Franc remains an appealing funding currency. Traders regularly borrow in Francs, then sell the currency to invest in higher-yielding assets, weighing on its value.

The Swiss National Bank’s (SNB) extended neutral policy stance reinforces this trend: its benchmark rate has remained at 0% for over a year. Pointing to stable domestic inflation, SNB Chair Martin Schlegel reiterated that an immediate policy change is unnecessary. Economic forecasters anticipate unchanged rates through 2027, although financial markets have started to factor in a possible increase in early 2027. Swiss policymakers have also toned down their threats of direct intervention in the currency market, taking away another potential source of support for the Franc.

Why does Scotiabank see mounting downside risks for the Dollar?

Weakening fundamentals have materially altered the balance of risks for the greenback, according to Scotiabank strategists, who warn that “we see significant downside risk for the USD on the basis of weakening fundamentals.” In their assessment, the underlying macroeconomic environment no longer supports the Dollar’s recent strength. The currency could therefore become increasingly exposed if forthcoming data continue to disappoint.

Swiss Franc: common questions

Which factors shape movements in the Swiss Franc?

Switzerland’s official currency, the Swiss Franc (CHF), ranks among the ten most actively traded currencies worldwide, with trading volumes far exceeding the size of the country’s economy. Broader market sentiment, Switzerland’s economic performance and decisions by the Swiss National Bank (SNB) are among the influences on its value. From 2011 to 2015, the Franc was pegged to the Euro (EUR). The sudden removal of that peg sent the Franc more than 20% higher and triggered turmoil across markets. Although the peg no longer applies, the Swiss economy’s substantial reliance on the neighbouring Eurozone means that movements in the CHF remain closely linked to those in the Euro.

What gives the Swiss Franc its safe-haven status?

Investors often turn to the Swiss Franc (CHF) during periods of market stress, giving it the status of a safe-haven asset. This reputation reflects Switzerland’s perceived standing internationally: economic stability, a robust export sector, sizeable central bank reserves and a longstanding policy of neutrality in global conflicts make its currency attractive to investors seeking to avoid risk. During turbulent periods, the CHF is therefore likely to appreciate against currencies regarded as riskier investments.

How can Swiss National Bank decisions move the Franc?

Monetary policy is set by the Swiss National Bank (SNB) at four meetings each year, one per quarter, a less frequent schedule than that of other major central banks. Its objective is to keep annual inflation below 2%. If inflation exceeds that target, or is projected to do so in the foreseeable future, the SNB will seek to curb price increases by raising its policy rate. Such increases generally support the Swiss Franc (CHF): higher yields make Switzerland more appealing to investors. Rate reductions, by contrast, typically put pressure on the CHF.

What do economic releases mean for the Swiss Franc?

Swiss macroeconomic releases provide an important gauge of economic conditions and can influence the valuation of the Swiss Franc (CHF). Although the economy is generally stable, abrupt shifts in growth, inflation, the current account or central bank currency reserves can prompt moves in the CHF. Strong growth, low unemployment and robust confidence usually support the currency. Data signalling a loss of economic momentum, on the other hand, are likely to lead to CHF depreciation.

Why does Eurozone monetary policy matter for the Swiss Franc?

Switzerland’s small, open economy relies heavily on economic conditions in the neighbouring Eurozone. As the wider European Union is its principal economic partner and an important political ally, macroeconomic and monetary policy stability in the Eurozone is crucial to Switzerland and, in turn, the Swiss Franc (CHF). Reflecting this dependence, some models put the correlation between movements in the Euro (EUR) and the CHF at more than 90%, approaching a perfect correlation.