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Swiss Franc Weakens as Low Interest Rates Persist
Confirmed
In Short: The Swiss Franc weakened this week as low interest rates made it less attractive compared to other currencies.
The Swiss Franc (CHF) weakened broadly this week, becoming the worst-performing major currency as rising expectations of further interest rate hikes in the US and elsewhere made it less appealing to investors. The currency's weakness is partly due to the widening interest rate differentials with other currency areas, according to SNB Chair Martin Schlegel.
The Swiss National Bank (SNB) decided to keep its policy rate at 0%, one of the lowest among major economies, according to its price stability objective. This decision reflects the SNB's assessment that inflation, while picking up, remains within its 0%-2% target range, providing less reason to raise rates.
On Thursday, the EUR/CHF pair gained 0.24%, trading around 0.9415 after reaching an intraday high of 0.9433 following the SNB's monetary policy decision. This gain reflects the currency's depreciation partly due to the interest-rate gap between Switzerland and other currency areas.
SNB Governing Board member Petra Tschudin noted that Swiss GDP growth was exceptionally strong in the second quarter, partly due to robust activity in the chemicals and pharmaceutical industry, but the central bank expects more moderate growth over the coming quarters. She reiterated that the SNB remains willing to intervene in the foreign exchange market if necessary.
The Swiss franc's value has been influenced by various factors, including the interest-rate gap between the Bank of England and the SNB, as well as changes in inflation and wage data. According to DBS Group Research, the SNB is likely to raise its near-term inflation forecast due to elevated energy prices, despite improved Swiss growth and reduced haven pressures against the Euro and Pound.
Traders have been booking profits following a one-sided rally from near the 0.8000 psychological mark in mid-August, causing the Swiss franc to regain some ground. Markets were pricing an almost 82% probability that the Fed would leave interest rates unchanged at its next meeting, according to the CME Group’s FedWatch Tool.
San Francisco Fed President Mary Daly said the Fed would “in all likelihood” need to raise rates and that it was hard to say whether policy was restrictive enough. Chicago Fed President Austan Goolsbee added that inflation would determine the path of rates and that the Fed still “has work to do” to bring it down.
The SNB denied any manipulation of the Swiss franc, responding to recent market speculation. The SNB's decision to maintain its policy rate at 0% reflects its commitment to price stability and its assessment of the current economic conditions.
What this adds
The SNB's decision to keep rates unchanged and the recent depreciation of the Swiss franc partly reflect the widening interest rate differentials with other currency areas.
What's confirmed
- S&P Global services PMI came in at 51.7 points, below expectations of 52 points, keeping the Swiss franc interest-rate outlook in focus.
What's still developing
- The table below shows the percentage change of Swiss Franc (CHF) against listed major currencies this week.
- For example, if you pick the Swiss Franc from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CHF (base)/USD (quote).
- The better tone in the US Dollar, rising US Treasury yields and expectation of extra rate hikes by the Fed continue to weigh on the precious metal in the latter part of Thursday’s NA session.
- The same combination of fiscal concerns and higher rates is creating an even more pronounced problem in Europe.
- Use the converter above for any other amount; provider rates may include a margin or fee.
- Customer rates normally include provider margins and fees.