Dollar Strengthens as US Rates Outpace SNB's Zero Interest Policy

The US dollar-Swiss franc pair has seen significant gains after the Federal Reserve raised interest rates for the first time since 2023. The Fed increased its target range by 0.25 percentage points to 3.75%-4.00% on Wednesday, widening an already significant policy gap between the United States and Switzerland.

The Swiss National Bank continues to hold its policy rate at 0%, with inflation remaining relatively low at just 0.6% in 2026. This means the SNB has less reason to follow other major central banks in raising borrowing costs, unlike the Fed which is concerned about headline inflation of 3.7% this year and core inflation of 3.4%, both still above its 2% target.

The widening rate gap is also attracting investors who are looking for higher returns on their investments. This can strengthen the incentive behind carry trades, where investors borrow in a low-yielding currency like the Swiss franc and move that money into currencies offering higher returns.