The USD/CHF pair is losing strength as the US dollar weakens amid expectations of two more interest rate cuts by the Federal Reserve in 2026. The pair is trading around 0.7920 during Asian hours on Friday. The Fed cut interest rates by 25 basis points at its December 2025 meeting, bringing the target range to 3.50%-3.75%. The US central bank has reduced its overall interest rate cuts by 75 basis points in 2025 amid a cold labor market and persistent inflation.
Markets are awaiting the nomination of US President Donald Trump for a new Chairman of the Federal Reserve to succeed Jerome Powell when his term ends in May, a step that may direct monetary policy towards lower interest rates. President Trump said earlier this week that the announcement would come “sometime in January.” National Economic Council Director Kevin Hassett is seen as the front-runner, although Trump has also shown interest in former Federal Reserve Governor Kevin Warsh. Other reported contenders include current Fed governors Christopher Waller and Michael Bowman, as well as BlackRock’s Rick Reeder.
However, minutes from the December FOMC meeting indicated divided expectations for policy. Most participants felt it would likely be appropriate to hold off on further interest rate cuts if inflation continues to decline, while some officials argued for keeping interest rates unchanged for a period after three cuts in 2025 aimed at supporting a weak labor market.
USD/CHF rose as the safe-haven Swiss franc found support amid rising geopolitical tensions, fueled by recent recriminations between Russia and Ukraine over New Year’s Day civilian attacks and ongoing friction between the US and Venezuela.
Switzerland’s KOF economic index rose 1.7 points to 103.4 in December, reaching its highest level since September 2024 and beating market expectations of 101.4. The improvement was more evident on the production side, where manufacturing-related indicators point to a more positive outlook.
Frequently asked questions about the Swiss franc
The Swiss Franc (CHF) is the official currency of Switzerland. It is among the top ten most traded currencies in the world, with its volume exceeding the size of the Swiss economy. Its value is determined by broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss franc was pegged to the euro (EUR). The peg was suddenly removed, causing the value of the franc to rise by more than 20%, causing turmoil in the markets. Although the peg is no longer in effect, the fortunes of the Swiss franc tend to be highly correlated with the euro due to the high dependence of the Swiss economy on the neighboring eurozone.
The Swiss Franc (CHF) is a safe-haven asset, or the currency that investors tend to buy during times of market stress. This is due to Switzerland’s perceived status in the world: a stable economy, a strong export sector, large central bank reserves or a long-standing political stance towards neutrality in global conflicts, making the country’s currency a good choice for risk-averse investors. Turbulent times are likely to strengthen the value of the Swiss franc against other currencies that are seen as riskier to invest in.
The Swiss National Bank meets four times a year – once every three months, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or expected to be above target in the foreseeable future, the bank will attempt to tame price growth by raising the interest rate. Higher interest rates are generally a positive for the Swiss Franc (CHF) because they lead to higher returns, making the country a more attractive place for investors. Conversely, low interest rates tend to weaken the Swiss franc.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can influence the valuation of the Swiss franc (CHF). The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or central bank currency reserves would lead to movements in the Swiss franc. In general, high economic growth, low unemployment and high confidence are good for the Swiss franc. Conversely, if economic data indicates weak momentum, the value of the Swiss franc is likely to decline.
As a small and open economy, Switzerland is highly dependent on the health of neighboring economies in the eurozone. The wider European Union is Switzerland’s main economic partner and a key political ally, so the stability of macroeconomic and monetary policy in the euro area is essential for Switzerland, and therefore for the Swiss franc (CHF). With such a dependence, some models suggest that the correlation between the fortunes of the euro (EUR) and the Swiss franc is over 90%, or close to perfect.
