UBS: SNB Decision Boosts Dollar-Franc Support Amid Rate Differentials

UBS Switzerland AG believes that the Swiss National Bank's decision to keep its policy rate unchanged at its latest meeting will support the dollar against the franc due to wide interest rate differentials.

The SNB did not adopt an overly hawkish tone, according to UBS strategists Constantin Bolz and Clémence Dumoncel. They note that Swiss inflation rose from 0.4% to 0.8% year over year in August, but domestic inflationary pressures remain limited.

UBS economists now expect two SNB rate hikes in March and June 2027, bringing forward the first increase from a previous expectation of mid-2027. They believe that this will limit sustained Swiss franc appreciation before year-end.

The bank keeps its forecasts at 0.81 for December and 0.79 for March, with near-term risks skewed to the upside. UBS also notes that the franc's role as a funding currency has increasingly overshadowed its safe-haven appeal, and the SNB's willingness to counter rapid appreciation has reduced the perceived risk of funding carry trades in francs.