The USD/CHF experiences a decline as Jan Hatzius anticipates that the Federal Reserve will maintain its current interest rates unless forthcoming inflation data presents an unexpected increase. Jackson Hole remarks elevated September US rate hike expectations from 35% to 57.5%. Swiss rates remain stable, although markets are beginning to factor in possible increases commencing in early 2027. USD/CHF maintains its losses following a slight uptick observed the day before, currently trading near 0.8090 during the Asian trading session on Monday. The currency pair edges lower as the US Dollar weakens following comments from Goldman Sachs chief economist Jan Hatzius. Hatzius reiterated his expectation that the Federal Reserve will maintain interest rates at their current level in September. He contended that Federal Reserve Chair Kevin Warsh’s hawkish tone at Jackson Hole would only lead to a rate hike if the forthcoming August CPI and PPI readings exceed expectations, a scenario that Goldman Sachs deems improbable.
Fed Chair Warsh adopted a distinctly more hawkish stance, as indicated by the FXS Speechtracker score of 7.4/10, surpassing the historical average of 6.5/10, which highlights increased apprehension regarding 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, indicates a tendency toward further tightening or, at the very least, a sustained restrictive stance. Warsh’s assertion that the recent better-than-expected summer inflation data does not indicate a significant shift in underlying trends maintains attention on inflation risks, which is favourable for the Dollar and slightly detrimental to risk-sensitive assets.
Markets have swiftly recalibrated their expectations in anticipation of the Federal Reserve’s forthcoming interest rate decision on September 15–16. According to the CME FedWatch tool, traders are currently assigning a probability of approximately 57.5% to the likelihood of a minimum 25 basis point rate increase next month, a significant rise from the 35% observed prior to Warsh’s speech. The Swiss National Bank has decided to keep its key policy rate at 0%, with expectations that this rate will remain unchanged until 2027. The SNB reiterated its readiness to intervene in foreign exchange markets to limit excessive Swiss Franc appreciation. While the consensus among economists suggests that a rate hike is unlikely until early 2028, current market pricing indicates a possibility of such an increase as soon as March 2027. This scenario could enhance the attractiveness of the franc 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 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.”
