The Swiss Franc’s exchange rate against the US Dollar may remain elevated in coming months, supported by a widening yield gap between Swiss and US interest rates, according to UBS strategists. After the Swiss National Bank (SNB) left its policy rate unchanged at its latest meeting, the bank’s cautious approach—despite limited domestic inflationary pressures—could help sustain USD/CHF strength, particularly as the franc’s role as a funding currency gains prominence over its traditional safe-haven appeal. UBS forecasts the currency pair to hover around 0.81 in December and 0.79 in March, with potential for further appreciation to test resistance levels near 0.84–0.85 in the medium term. Initial support lies around 0.80, with a deeper level just below 0.77 acting as a secondary floor, while resistance is anchored near 0.84 and 0.8580. Real-time data shows the pair trading at 0.8252 (+0.06% on the day).
The franc’s resilience stems partly from the SNB’s recent policy stance. While inflation rose from 0.4% to 0.8% year over year in August, the bank has avoided aggressive tightening, keeping rates flat. This contrasts with expectations of two hikes in March and June 2027—a shift from prior projections of mid-2027—suggesting a more gradual approach to monetary policy. Meanwhile, UBS argues that markets have overestimated Federal Reserve tightening, which could weaken USD demand as the SNB begins to normalize rates. The US economy remains resilient, driven by AI-driven capital expenditure, though uncertainty over the upcoming midterm elections may dampen international demand for dollar assets.
The franc’s funding-currency appeal has also grown, overshadowing its safe-haven status. The SNB’s willingness to intervene to curb rapid franc appreciation has reduced perceived risks in carry trades, while the Japanese yen has lost favor as a funding currency after the Bank of Japan’s rate hikes and potential intervention risks. This dynamic may further support USD/CHF, as the franc’s liquidity advantages become more pronounced.
UBS strategists, including Constantin Bolz and Clémence Dumoncel, highlight the yield gap as a key driver, with Swiss yields lagging behind US rates. If the SNB’s rate hikes proceed as expected, the gap could widen further, sustaining pressure on the franc and reinforcing USD/CHF strength.
