Swiss Franc Slides as USD/CHF Rises on Fed Hike Bets

Key Moments

USD/CHF trades around 0.8180 in Asian hours, extending its advance for a fourth straight session.
Markets price in an 87% probability of a 25 bp Fed rate hike after August CPI rose 0.4% MoM and 3.4% over 12 months.
The Swiss Franc underperforms as carry-trade flows and expectations of an unchanged 0% SNB policy rate pressure the currency.

Dollar Strengthens as Fed Hike Odds Rise

The US Dollar Index is gaining ground as traders ramp up bets on a quarter-point rate increase following stronger inflation readings. Financial markets have assigned nearly an 87% probability to a 25 basis point move at the Federal Reserve’s September meeting, up from 59% just a week earlier, according to the CME FedWatch tool.

Latest data from the Bureau of Labor Statistics showed that the US Consumer Price Index (CPI) rose 0.4% month-on-month in August, lifting the 12-month increase to 3.4%. Both figures matched consensus expectations. The core CPI, which excludes food and energy, climbed 0.3% on the month, compared with 0.2% previously and above the 0.2% forecast, reinforcing expectations for further tightening.

USD/CHF Extends Rally as Rate Differential Narrative Builds

USD/CHF is advancing for the fourth consecutive session, trading near 0.8180 during Monday’s Asian session. The pair continues to benefit from broad US Dollar strength as investors position for a potentially more aggressive Federal Reserve outcome at Wednesday’s policy decision.

At the same time, the Swiss Franc is facing headwinds from expectations that the interest rate gap between the United States and Switzerland could widen. This dynamic is weighing on CHF ahead of the upcoming Fed meeting.

Carry Trades and SNB Stance Pressure the Swiss Franc

The Swiss Franc is also experiencing selling pressure tied to shifts in yen-funded carry trades. A more hawkish tone from the Bank of Japan and joint yen-buying interventions by Washington and Tokyo have diminished the attractiveness of the Japanese Yen as a funding currency, prompting market participants to rotate into other safe-haven funding options such as the CHF.

This repositioning has triggered additional downside for the Swiss Franc, as investors unwind franc-funded positions to seek higher-yielding assets elsewhere. In contrast to other major central banks, the Swiss National Bank (SNB) is widely expected to keep its key policy rate at 0% through year-end, leaving Switzerland with the lowest benchmark rate among major economies.

UOB: Upside Risks Emerging for USD/CHF

Strategists at UOB Group indicate that their previously neutral stance on USD/CHF is starting to lean to the upside as the pair approaches the top of its recent trading band. They recall that on September 7, with spot at 0.8100, they had highlighted that “for the time being, we expect USD to trade in a range between 0.8055 and 0.8155.” By September 10, with spot still around 0.8100, this was refined to “we continue to expect range-trading, but a narrower range of 0.8060/0.8135 is likely enough to contain the price movements in USD for now.”

However, UOB points out that USD/CHF subsequently “rose to a high of 0.8147,” and that “upward momentum is starting to build.” In their one-to-three-week view, they now judge that “if USD breaks and closes above 0.8155, it could continue to rise toward 0.8175.” They add that “the odds of USD breaking clearly above 0.8155 will remain intact as long as USD holds above the ‘strong support’ level, now at 0.8085.”

Swiss Franc Performance Against Major Currencies

The Swiss Franc is underperforming across the board, with the largest losses versus the US Dollar. The table below details the intraday percentage change of CHF against key majors, along with cross-moves among the other currencies.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.30%	0.17%	0.32%	0.03%	0.32%	0.55%	0.30%
EUR	-0.30%		-0.11%	-0.02%	-0.27%	0.00%	0.26%	-0.01%
GBP	-0.17%	0.11%		0.08%	-0.14%	0.12%	0.35%	0.04%
JPY	-0.32%	0.02%	-0.08%		-0.29%	0.02%	0.23%	-0.06%
CAD	-0.03%	0.27%	0.14%	0.29%		0.28%	0.50%	0.21%
AUD	-0.32%	-0.01%	-0.12%	-0.02%	-0.28%		0.24%	-0.09%
NZD	-0.55%	-0.26%	-0.35%	-0.23%	-0.50%	-0.24%		-0.33%
CHF	-0.30%	0.00%	-0.04%	0.06%	-0.21%	0.09%	0.33%

The heat map is read by selecting the base currency from the left-hand column and the quote currency from the top row. For instance, choosing the Swiss Franc as the base and moving horizontally to the US Dollar cell shows the percentage move in CHF (base)/USD (quote).