Dollar Momentum Pressures Swiss Franc on Policy Split

Key Moments

Dollar Strength Keeps USD/CHF Near Multi-Month Highs

USD/CHF is on track for a sixth consecutive daily gain, trading near its 16-month high of 0.8358 during Asian trading on Wednesday. The pair continues to push higher as the US Dollar (USD) benefits from mounting expectations that the Federal Reserve (Fed) will deliver additional interest rate hikes.

According to the CME FedWatch Tool, market participants currently assign nearly a 68% chance to a Fed rate increase in October and a 95% probability of a 25-basis-point hike in December. Attention is turning to Friday’s US Nonfarm Payrolls release, with economists projecting a 90,000 rise in September employment and an unchanged Unemployment Rate at 4.1%.

Swiss Data Shows Strength as Policy Outlook Remains Cautious

In Switzerland, the economic backdrop has improved, with the KOF Leading Indicator rising to 109.1 in September, its highest level in six years. The reading exceeded expectations for a decline to 105.8 and followed an upwardly revised August figure of 107.5.

Investors are now awaiting the latest Swiss ZEW Expectations survey for September and the Swiss National Bank’s (SNB) Third Quarter Quarterly Bulletin for further guidance on the macro and policy outlook.

Analysts at Rabobank underscored the SNB’s restrained approach, noting that “the SNB released its decision to hold the overnight policy rate at 0.0% at the September 24 meeting.” They pointed out that this steady stance comes alongside largely unchanged CHF positioning, even as pricing along the OIS curve indicates expectations for more than two SNB rate hikes by mid‑next year. This prospective policy path provides some medium‑term support for the Franc despite a current net short positioning backdrop.

Key Policy and Macro Metrics

USD/CHF Technical Setup: Bullish but Overextended

On the daily chart, USD/CHF is trading around 0.8350, extending its rebound above both the nine-period and 50-period Exponential Moving Averages (EMAs). This configuration supports a constructive short-term view, with the shorter EMA positioned above the longer EMA, pointing to firming upside momentum.

The 14-day Relative Strength Index (RSI) stands at 74.21, signaling overbought conditions and indicating that the latest push higher may be stretched, even though directional bias remains to the upside. This is complemented by an elevated FXS Fed Sentiment Index near 143.70, which continues to underpin Dollar demand.

On the downside, initial support is located near the nine-period EMA at approximately 0.8284. Should profit-taking intensify, a deeper pullback could target the 50-period EMA around 0.8152. On the topside, the absence of clearly defined price resistance levels suggests scope for further gains, but the overbought RSI reading and strong Fed sentiment highlight growing vulnerability to a corrective move as buyers probe levels above 0.8345.

Background: Swiss Franc Characteristics and Drivers

The Swiss Franc (CHF) is Switzerland’s official currency and ranks among the ten most heavily traded currencies globally, with trading volumes that far exceed the size of the domestic economy. Its valuation is influenced by broad market risk sentiment, Switzerland’s economic conditions, and decisions by the Swiss National Bank, among other factors. Between 2011 and 2015, CHF was pegged to the Euro (EUR). The sudden removal of this peg led to a more than 20% surge in the Franc, triggering significant market disruption. While the peg has been discontinued, CHF performance remains closely linked to that of the Euro due to Switzerland’s strong economic ties with the Eurozone.

CHF is widely regarded as a safe-haven currency that investors tend to favor during periods of market turbulence. This perception is supported by Switzerland’s reputation for economic stability, a robust export sector, substantial central bank reserves, and a tradition of political neutrality in global conflicts. During episodes of heightened uncertainty, this profile typically provides support for the Franc against currencies perceived as riskier.

The SNB sets monetary policy at quarterly meetings, aiming to keep annual inflation below 2%. When inflation exceeds or is projected to exceed that objective, the central bank may raise its policy rate to curb price pressures. Higher interest rates generally bolster CHF by increasing yields and improving the currency’s appeal to global investors. Conversely, rate cuts tend to weigh on the Franc.

Swiss macroeconomic releases are closely monitored as indicators of the country’s underlying momentum and can influence CHF pricing. Strong growth, low joblessness, and elevated confidence readings are typically supportive for the currency, while signs of slowing activity can lead to depreciation. Given Switzerland’s status as a small, open economy that is deeply integrated with the Eurozone, developments in European Union economies and Eurozone monetary policy are especially important. Some analytical models suggest a correlation of more than 90% between the performance of EUR and CHF, underlining how closely the two currencies move together.