Swiss Franc holds gains against US Dollar despite hawkish Fed outlook

• USD/CHF may regain as the US Dollar gains support on Fed rate hike bets in December.
• Markets price in a 13% probability of a larger 50-basis-point Federal Reserve rate hike in December.
• The Swiss National Bank is expected to hold rates at 0% with contained inflation and falling oil prices.

USD/CHF inches lower after two days of gains, trading around 0.8330 during Asian hours on Thursday. The currency pair could regain ground as the US Dollar (USD) draws support from an increasingly hawkish Federal Reserve policy outlook, driven by hotter-than-expected US Consumer Price Index (CPI) inflation data.

Traders have ramped up bets on a December rate hike after Fed Governor Christopher Waller indicated earlier this week that he would support a quarter-point increase, or even a half-point move if inflation worsens. According to the CME FedWatch Tool, markets are now pricing in an 87% probability of a December rate hike, alongside nearly a 13% chance of a larger 50-basis-point increase.

Dollar support underpinned by Fed independence and enduring safe haven role

Strategists at Rabobank argue that the backdrop for the USD has improved as “diminished fears about political interference on the Fed is a supportive factor for the USD.” They add that the market reaction “at the start of the Gulf war,” where “strong demand for the USD undermined last year’s claims that the USD’s had lost at least part of its safe haven value,” reinforces the currency’s defensive credentials. In their view, the Dollar’s safe-haven status is structurally anchored, with its appeal “linked to its embedded position in global payments systems, which could take decades to shake.”

Meanwhile, the Swiss National Bank (SNB) is widely expected to hold interest rates steady at 0% during its upcoming meeting. Although financial markets are pricing in a potential rate hike by early 2027, most economists anticipate the first increase will take place closer to late 2027.

SNB Chairman Schlegel noted that price pressures remain contained and the central bank has met its medium-term price stability mandate, with declining oil prices further easing inflationary risks.