Swiss Franc strengthens as US Dollar falls on fading Fed rate hike expectations

• USD/CHF drops as weak US retail sales and cooling inflation lower September rate hike odds to 35%.
• CME FedWatch tool suggests traders are now pricing in just a 35% chance of a rate hike in September.
• The Swiss National Bank kept its policy rate at 0% and is expected to hold rates there through 2027.

USD/CHF depreciates after registering modest gains in the previous day, trading around 0.8120 during the Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) weakens amid easing expectations of a US interest rate hike next month. Recent economic data showed that US Retail Sales dropped in July for the first time in nine months, compounding concerns after unexpected job losses last month and tame CPI inflation figures.

While the Fed left interest rates unchanged at its last meeting, three officials dissented in favor of a rate hike, leaving traders looking to the upcoming minutes for deeper insight into the division within the central bank. According to the CME FedWatch tool, traders now price in just a 35% chance of a rate hike at the Fed’s September meeting, down significantly from 47% a month earlier.

Switzerland’s economic growth, excluding major sporting events, accelerated sharply to 1.5% quarter-on-quarter in the second quarter of 2026. This momentum was reinforced by foreign exchange interventions, which helped protect Swiss exporters by curbing safe-haven capital flows into the Swiss Franc and preventing excessive currency appreciation.

Meanwhile, inflationary pressures continued to ease, with Swiss inflation slowing to 0.4% in July, its lowest level in four months. In response, the Swiss National Bank (SNB) maintained its policy rate at 0% during its latest meeting and is expected to hold interest rates at this level through 2027, treating any further rate cuts as a contingency rather than the baseline path. While financial markets are pricing in a rate hike as early as March 2027, most economists anticipate the first increase will occur in early 2028.

Analysts at Rabobank highlighted that, “for years, the Swiss central bank has struggled with the impact of haven flows into the CHF,” noting that the recent bout of Swiss Franc softness is likely a welcome development for the SNB after its prolonged battle against persistent inflows.

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