Swiss Franc Surges on Surprise Inflation, Hike Expectations Remain

The Swiss Franc (CHF) has been a top performer in currency markets today, only surpassed by the Japanese Yen. According to Brown Brothers Harriman's Elias Haddad, this is largely due to August's inflation surprise, which reinforced expectations of a rate hike from the Swiss National Bank (SNB). Headline Consumer Price Index (CPI) rose 0.8% year-over-year (y/y), exceeding the consensus estimate of 0.5%, and marking the highest reading since September 2024.

Core CPI inflation also surprised to the upside at 0.4% y/y, following four consecutive readings of 0.3%. Despite this, markets remain confident that a first 25 basis point (bps) hike will only occur in June 2027, with the swaps curve fully pricing in this expectation.

Haddad notes that low interest rates and contained inflation are still a headwind for the Franc over the quarter. The SNB has plenty of room to keep rates at 0.00% for now, given that inflation remains within its price stability mandate of less than 2% per annum.