Swiss Franc gains as US Dollar weakens despite Fed Chair Warsh’s hawkish remarks

• USD/CHF falls as Jan Hatzius expects no Fed rate change unless upcoming inflation data surprises to the upside.
• Jackson Hole remarks lifted September US rate hike expectations from 35% to 57.5%.
• Swiss rates remain anchored, though markets price in potential hikes starting by early 2027.

USD/CHF holds losses after registering modest gains in the previous day, trading around 0.8090 during the Asian hours on Monday. The currency pair edges lower as the US Dollar (USD) weakens following comments from Goldman Sachs chief economist Jan Hatzius. Hatzius reiterated his expectation that the Federal Reserve (Fed) will hold interest rates steady in September. He argued that Federal Reserve Chair Kevin Warsh’s hawkish tone at Jackson Hole would only translate into a rate hike if upcoming August CPI and PPI readings surprise to the upside, an outcome Goldman Sachs considers unlikely.

Warsh flags unfinished inflation work as financial conditions stay loose

Fed Chair Warsh delivered a notably more hawkish tone, with the FXS Speechtracker score at 7.4/10, above the 6.5/10 historical average, underscoring heightened concern on price stability. The insistence that the Fed must be confident underlying inflation is moving to the 2% PCE objective “or we have work to do,” combined with the view that financial conditions are not restrictive and credit and loan markets show few signs of policy restraint, points to a bias toward further tightening or at least a prolonged restrictive stance. Warsh’s emphasis that recent better-than-expected summer inflation data do not yet signal a meaningful change in underlying trends keeps the focus squarely on inflation risks, supportive of the Dollar and mildly negative for risk-sensitive assets.

Markets have quickly adjusted their expectations ahead of the Fed’s next interest rate decision on September 15–16. According to the CME FedWatch tool, traders are now pricing in nearly a 57.5% chance of at least a 25 basis point rate hike next month, up sharply from 35% before Warsh’s speech.

The Swiss National Bank (SNB) held its key policy rate at 0% and is projected to maintain this level through 2027. The SNB reiterated its readiness to intervene in foreign exchange markets to limit excessive Swiss Franc appreciation. While most economists do not foresee a rate hike until early 2028, market pricing reflects odds of a hike as early as March 2027, potentially reinforcing the franc’s appeal as a funding currency for carry trades.

Strategists at Brown Brothers Harriman expect Switzerland’s August inflation data to remain subdued, reinforcing the Swiss National Bank’s ability to stay on hold. BBH looks for “headline CPI … at 0.5% y/y vs. 0.4% in June, tracking slightly below the Swiss National Bank’s (SNB) forecast of 0.6% y/y in Q3,” while “core CPI is expected at 0.3% y/y for a fifth straight month.” In their view, the “bottom line” is that “the SNB has plenty of room to keep rates at 0.00% for some time, which is an ongoing drag for CHF,” with the Franc currently “the worst performing G10 currency so far this quarter.”

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