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Swiss Franc Steadies as Fed Hike Expectations Offset Safe Haven Flows
Confirmed
In Short: The Swiss Franc steadied as Federal Reserve rate hike expectations offset safe haven flows, with traders looking to upcoming US inflation data for further cues.
According to reports, the CME FedWatch tool showed a probability of around 60.6% for another quarter-point rate hike, while the Swiss National Bank is projected to keep its policy rate at 0% well into next year.
Analysts at Brown Brothers Harriman noted that despite recent inflation surprises, the policy outlook remains remarkably benign, with the swaps curve fully pricing in a first 25bps hike to 0.25% in June 2027.
Market participants are now focused on upcoming US Producer Price Index and Consumer Price Index inflation data, which could further shape rate expectations, while rising tensions in the Middle East could boost the Franc as a safe-haven currency.
What's confirmed
What's still developing
- If the reports show hotter-than-expected outcomes, this could lift the US Dollar (USD) against the Swiss Franc (CHF).
- In their view, “the SNB has plenty of room to keep rates at 0.00% for some time, given that inflation remains well within the bank’s price stability mandate of less than 2% per annum,” a backdrop that helps cap how far the Franc can benefit from the latest data surprise.
- The dollar-Swiss franc saw strong rallies stall out with the benchmark pair registering modest gains of over 0.30% as the greenback was boosted by a solid US non-farm payrolls report, pushing the pair above the 50-day Simple Moving Average (SMA) to reach a daily high of 0.8126.
- The stronger-than-expected NFP jobs report revived expectations that the Federal Reserve may consider a rate hike at its upcoming September meeting.
- Safe-haven assets like gold initially dipped below $4,400 before trying to recover.
- Hawkish RBA expectations continue to act as a tailwind for the Aussie.
- Meanwhile, the upbeat US NFP report lifted Fed rate hike bets, which, along with escalating US-Iran tensions, underpins the safe-haven US Dollar and caps the currency pair.
- A stronger-than-expected August US jobs report has reinforced expectations for tighter Fed policy, pushing the probability of a September rate hike to above 60%.