Swiss Franc Gains Limited by Diverging Interest Rates
The Swiss Franc (CHF) gained against the US Dollar (USD) on Friday, but its upward momentum may be limited by the divergence in interest rates between the Federal Reserve and the Swiss National Bank.
The USD/CHF pair declined as the US Dollar lost steam heading into the weekend, with traders booking profits after a strong weekly advance driven by the Fed's 25 basis point interest-rate hike to the 3.75%-4.00% range on Wednesday.
The Federal Reserve's hawkish stance was reinforced by Kansas City President Jeffrey Schmid, who supported this week's rate hike and noted that recent data suggest inflation is trending above 3%, with price growth being 'hot' across a broad range of goods and services.
The divergence in interest rates between the Fed and SNB may widen the gap, making US Dollar-denominated assets more attractive and leaving the Swiss Franc vulnerable to additional losses. The Swiss National Bank keeps its policy rate at zero, and traders now turn their attention to the SNB's monetary policy decision next week.