The Fed increased its target range by 0.25 percentage points to 3.75%-4.00% on Wednesday, while the Swiss National Bank continues to hold its policy rate at 0%. The difference is adding pressure to the franc and keeping the dollar supported.
The Fed’s message also suggests Wednesday’s increase may not be the last. Its latest projections put the median federal funds rate at 4.1% at the end of 2026, consistent with another quarter-point increase before year-end. Inflation remains the main concern, with the Fed now expecting headline inflation of 3.7% this year and core inflation of 3.4%, both still well above its 2% target.
Widening Rate Gap Keeps the Franc Under Pressure
Switzerland presents a very different picture. The SNB has kept its policy rate at 0% since mid-2025 and maintained that level at its latest meeting in June. Swiss inflation remains comparatively low, with the central bank forecasting average inflation of just 0.6% in 2026. That gives the SNB considerably less reason to follow other major central banks in raising borrowing costs.
The widening gap matters for currencies because investors generally receive a higher return for holding US dollars than Swiss francs. It can also strengthen the incentive behind carry trades, where investors borrow in a low-yielding currency and move that money into currencies offering higher returns. With US rates moving higher while Swiss rates remain at zero, that difference has become increasingly important for USD/CHF.
The SNB also faces an unusual challenge with the franc. While geopolitical uncertainty would normally increase demand for the currency as a traditional safe haven, the central bank has repeatedly warned against excessive franc strength and remains willing to intervene in foreign exchange markets if necessary. This means safe-haven demand and monetary policy are currently pulling the currency in different directions.
Geopolitical Risks Could Complicate the Picture
The Middle East remains another source of uncertainty. Higher energy prices have contributed to inflation pressures globally, including in Switzerland, while also supporting the Fed’s argument for tighter policy. At the same time, a further escalation could increase demand for traditional safe-haven currencies such as the franc, potentially working against the widening interest-rate gap. The SNB has acknowledged that developments in the region remain an important risk to both inflation and growth.
“The dollar has a clear interest-rate advantage over the franc, and the Fed’s latest hike has made that gap even wider. Switzerland faces a very different inflation picture, giving the SNB less reason to raise rates for now. However, the franc’s role as a safe-haven currency means geopolitical tensions could still pull it in the opposite direction. Markets will therefore be watching both central banks and developments in the Middle East closely,” says Agustina Patti, Financial Markets Strategist at Exness.
For traders, attention now shifts to the SNB’s policy decision on 24 September and any further signals from the Fed about another rate increase before year-end. With the two central banks currently moving in very different directions, changes in rate expectations could remain an important driver of USD/CHF over the coming weeks.
