USD/CHF Rises as Dollar Gains on Fed Policy Repricing

Key Moments

Fed Repricing Backs the Greenback

USD/CHF is modestly higher on Wednesday, supported by broad-based US Dollar gains that are weighing on the Swiss Franc. The pair is hovering around 0.7746 at the time of writing, having recovered from an earlier intraday low of 0.7719.

The Dollar’s tone has firmed as market participants reassess the trajectory of Federal Reserve policy and scale back expectations for imminent interest rate reductions. Policymakers remain wary of persistent inflation pressures, which is prompting traders to moderate their forecasts for near-term cuts.

Chicago Fed President Austan Goolsbee said on Tuesday that he is cautious about front-loading rate cuts without clear evidence that inflation is moving sustainably back toward the 2% target.

Market pricing now broadly reflects expectations that the Fed will leave rates unchanged at its March and April meetings, while still discounting nearly 50 basis points of easing by year-end.

June Cut Odds Fade as July Becomes Focus

The timing of the first potential rate cut has shifted. A move in June – previously viewed as the most likely moment for the Fed to restart its easing cycle – has become less assured. According to the CME FedWatch Tool, the implied probability of a June rate cut has slipped to around 40% from roughly 50% a week earlier.

July is increasingly seen as the more probable window for a policy reduction, with current market pricing suggesting about a 65% chance of a cut at that meeting.

This recalibration is providing short-term support to the Greenback. At the same time, the Dollar’s medium-term upside is described as constrained by ongoing structural concerns linked to US President Donald Trump’s assertive trade stance, as well as questions around policy credibility and fiscal stability.

Swiss Data and SNB Commentary

On the Swiss side, recent data have painted a somewhat brighter picture without materially boosting CHF. Economic sentiment improved in February, with the ZEW Survey – Expectations index rising to 9.8 from -4.7 in the prior month. Despite this rebound in expectations, the Swiss Franc has not drawn substantial support from the release.

Swiss National Bank (SNB) Chairman Martin Schlegel commented on the inflation outlook on Tuesday, noting potential short-term softness in prices while emphasizing a medium-term perspective. Speaking on Tuesday, Swiss National Bank (SNB) Chairman Martin Schlegel said, “It’s possible there will be a few months with negative inflation, but that’s not an alarm signal as we look at inflation over the mid-term.” He added, “I expect inflation to accelerate in the coming quarters,” and reiterated that “the SNB is ready to intervene on currency markets where necessary.”

Event Risk Ahead for USD/CHF

For the immediate term, the US calendar is light on Wednesday, leaving traders focused on forthcoming remarks from Fed officials during the American session for further policy clues.

Later in the week, attention will turn to scheduled data releases that could influence USD/CHF. The US Producer Price Index (PPI) and Switzerland’s fourth-quarter Gross Domestic Product (GDP) figures are both due on Friday and are likely to be closely monitored for their implications for monetary policy expectations and relative growth dynamics.

Swiss Franc: Structure and Drivers

The Swiss Franc (CHF) is Switzerland’s official currency and ranks among the top ten most traded currencies worldwide, with turnover that significantly exceeds the size of the domestic economy. Its valuation is shaped by overall market risk sentiment, Switzerland’s economic conditions, and policy decisions by the Swiss National Bank, among other drivers.

Between 2011 and 2015, CHF was pegged to the Euro (EUR). The abrupt removal of that peg triggered an appreciation of more than 20% in the Franc, causing significant market disruption. Even without the peg, CHF performance remains closely tied to EUR due to Switzerland’s substantial economic exposure to the Eurozone.

Safe-Haven Role of the Franc

The Swiss Franc is widely viewed as a safe-haven currency that tends to attract inflows during episodes of market stress. This status reflects perceptions of Switzerland as having a stable economy, a robust export sector, substantial central bank reserves, and a long-standing policy of political neutrality in international conflicts. During turbulent periods, these attributes often draw investors toward CHF and away from currencies considered more risky.

Impact of SNB Policy on CHF

The SNB convenes quarterly – four times a year – to set monetary policy, targeting an annual inflation rate of less than 2%. When inflation runs above that threshold or is projected to exceed it in the foreseeable future, the central bank typically responds by raising its policy rate. Higher rates tend to support CHF by delivering more attractive yields to investors. Conversely, rate cuts generally weigh on the currency.

Macroeconomic Data and the Franc

Key Swiss macroeconomic indicators provide essential insight into the health of the economy and can have a direct impact on the Franc. Although Switzerland’s economy is generally stable, sharp moves in growth, inflation, the current account balance, or the SNB’s foreign currency reserves can prompt notable shifts in CHF.

Solid economic growth, low unemployment, and strong confidence indicators are typically positive for the Franc. In contrast, data suggesting weakening momentum can undermine CHF.

Linkages with the Eurozone

Switzerland’s small, open economy is deeply intertwined with that of the Eurozone, which is both a critical economic partner and a key political counterpart for the country. As a result, macroeconomic conditions and monetary policy developments in the Eurozone play a crucial role for Switzerland and, by extension, for CHF.

Given this tight integration, some analytical models indicate that the correlation between the Euro and the Swiss Franc exceeds 90%, implying that the two currencies often move in close alignment.