FX.co ★ Swiss Franc Strengthens to One-Week High

The Swiss franc strengthened to around 0.83 per USD, its highest level in about a week, amid expectations that interest rates will remain elevated for longer. Firmer US inflation data has reinforced bets on a Federal Reserve rate hike in October, stoking concerns that prolonged high borrowing costs could weigh on capital-intensive sectors, particularly the AI buildout. As a traditional safe-haven currency, the franc is benefiting from investors seeking protection from increased market volatility.

At the same time, the move in the franc puts pressure on the sizable short positions that have accumulated on the back of widening interest rate differentials. In contrast to several other central banks, the Swiss National Bank is widely expected to keep its policy rate unchanged at 0% through year-end, and policymakers have recently softened their rhetoric on potential currency intervention. Swiss borrowing costs have been the lowest in the world for more than a year, underpinning the franc’s role as a preferred funding currency for carry trades. As traders establish short positions, the selling of franc-funded loans exerts downward pressure on the currency.