The Swiss franc slipped beyond 0.83 per USD, approaching its weakest level since May 2025, as markets priced in a renewed likelihood of another Federal Reserve rate hike that would further widen the interest-rate gap between the US and Switzerland. Stronger-than-expected US inflation and labour market data have reinforced expectations of additional Fed tightening and bolstered the dollar.
In contrast, Swiss borrowing costs are expected to remain at 0%—the lowest in the world—cementing the franc’s role as a funding currency for carry trades, in which investors borrow in low-yielding currencies to invest in higher-yielding assets abroad. Although the Swiss National Bank has softened its earlier stance on foreign-exchange intervention, officials reiterated to lawmakers on Wednesday that they remain prepared to act if needed to counter excessive franc appreciation.
At the same time, the franc’s renewed status as a safe-haven currency—driven by concerns over a potential eurozone sovereign debt crisis and uncertainties surrounding AI-related risks—is eroding the profitability of carry trades. This is triggering an unwinding of such positions and, in turn, adding upward pressure on the Swiss currency.
