• USD/CHF rises as markets price in a 56.5% chance of another rate increase in October.
• Fed Chair Kevin Warsh stresses that persistent inflation remains too high, signaling further tightening.
• The Swiss Franc weakened due to a wider US interest rate gap and shifting carry-trade dynamics.

USD/CHF gains ground after two days of losses, trading around 0.8230 during the Asian hours on Monday. The pair appreciates as the US Dollar (USD) gains support amid hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook. Last week, the US Federal Reserve delivered a 25-basis-point rate hike, its first hike in three years, as officials sought to curb inflation and flagged more hikes in the coming months.

Markets are now pricing in nearly a 56.5% chance of another US rate hike when the Fed meets next in October, compared with nearly 42.5% a week ago, according to the CME FedWatch tool. Fed Chair Kevin Warsh said that “the plain fact is that inflation is too high and has been for too long.” “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” he added.

The USD/CHF pair gains support as the Swiss Franc (CHF) has weakened due to a widening interest rate differential with the United States and intense selling pressure driven by new carry trades.

This shift is largely attributed to the Federal Reserve delivering its first-rate hike in three years, which significantly boosted demand for the greenback. At the same time, the Bank of Japan’s policy tightening, combined with a historic Washington–Tokyo intervention to support the yen, has reduced the Swiss Franc’s appeal as a primary funding source for carry trades.

SNB seen on extended hold as Swiss growth outperforms but inflation stays muted

Economists at ING expect the Swiss National Bank to maintain its current stance, stating that “we expect the Swiss National Bank to keep its policy rate at 0% next Thursday and to remain on hold over the coming quarters.” They argue that stronger-than-expected Swiss growth and a slightly weaker Franc have not yet translated into problematic price pressures, allowing the SNB to keep policy accommodative for longer while inflation remains subdued.