The USD/CHF appreciates following the release of robust US employment figures, which have heightened anticipations for a potential interest rate increase by the Federal Reserve in September. Nonfarm payrolls increased by 162,000, with the unemployment rate remaining unchanged at 4.1%, and wage growth experiencing a moderate slowdown. Rising inflation in Switzerland, coupled with robust economic growth, is fuelling anticipations of a sooner-than-expected rate increase by the Swiss National Bank. For the second day in a row, USD/CHF is up, trading at about 0.8110 on Monday. The pair appreciates as the US Dollar recovers its daily losses, driven by stronger-than-expected employment data from the United States that fuels expectations of an imminent Federal Reserve interest rate hike.
According to the US Bureau of Labour Statistics, August Nonfarm Payrolls increased by 162,000, considerably exceeding the forecast of 56,000. Meanwhile, the unemployment rate remained unchanged at 4.1%, while annual wage growth decelerated to 3.1%, a figure that was less than expected. In light of these figures, traders swiftly adjusted their expectations for tighter monetary policy, as evidenced by the CME FedWatch tool, which reflects a 58.3% probability of a 25-basis-point increase in the Fed rate for September. Additionally, the Greenback receives support as rising crude oil prices have stoked fears of rekindled inflationary pressures following a geopolitical escalation between the US and Iran over the weekend. The conflict intensified following the US’s targeting of three Iranian tankers in reaction to missile attacks on its warships, prompting Tehran to create a new restricted zone around the Strait of Hormuz.
The Swiss Franc diminishes its attractiveness as a funding currency for carry trades, primarily influenced by escalating inflation concerns that have intensified a hawkish market sentiment. In August, Swiss inflation experienced a twofold increase, coinciding with a notable acceleration in quarterly economic growth, reaching its peak in nearly five years. These unexpectedly strong economic indicators have increased expectations that the Swiss National Bank might need to raise interest rates sooner than previously thought. Analysts highlight that the latest Swiss data delivered a clear upside surprise, with headline CPI rising to “0.8% y/y (consensus: 0.5% y/y) vs. 0.4% in July.” They note this leaves headline inflation “the highest since September 2024 and above the SNB’s Q3 forecast of 0.6% y/y,” reinforcing expectations that the SNB may need to stay vigilant on price pressures. BBH also points out that underlying price dynamics firmed, as “core CPI inflation also surprised to the upside at 0.4% y/y (consensus: 0.3%), following four straight 0.3% readings,” underscoring a gradual but notable pickup in core inflation momentum.
Despite these hawkish economic signals, institutional forecasts continue to exhibit a notable degree of caution concerning the immediate trajectory of monetary policy. A recent survey conducted by the Swiss Bankers Association indicated that all participating bankers anticipate the SNB will maintain its policy rate at 0% until the conclusion of the year. Financial markets are currently anticipating the first rate hike for June 2027, while most economists expect that the central bank will postpone its initial rate increase until early 2028.
