Swiss Franc Soars Against US Dollar Despite Policy Divergence
The Swiss Franc is gaining against the US Dollar, but the divergence in monetary policies between the Federal Reserve and the Swiss National Bank could weigh on its value. The USD/CHF pair declined on Friday as traders took profits following a strong weekly advance driven by the Fed's hawkish interest-rate hike.
The Fed raised interest rates by 25 basis points to the 3.75%-4.00% range, and 16 of 18 officials expect at least one more rate hike this year. Kansas City President Jeffrey Schmid said that he supported this week's rate hike as recent data suggest inflation is trending above 3%. He added that price growth has been 'hot' across a broad range of goods and services.
Despite the intraday decline, USD/CHF is on track for a fourth straight weekly gain, driven largely by Swiss Franc weakness rather than broad US Dollar strength. The interest-rate gap with Switzerland, where the Swiss National Bank keeps its policy rate at zero, could widen the Fed's rate hikes' impact and make US Dollar-denominated assets more attractive.
The SNB's monetary policy decision next week will be closely watched by traders, as it may influence the Franc's value. Additionally, the Bank of Japan's (BoJ) policy normalisation and rising Japanese interest rates are making the Yen less attractive for funding carry trades, pushing investors to sell the Franc to buy higher-yielding currencies.