Swiss Franc recovery halts with SNB monetary policy coming into focus

The Swiss Franc (CHF) nurses minor losses against the US Dollar (USD) to pare some of the previous two trading days’ recovery. The USD/CHF pair hesitates above 0.8220 in a quiet trading session on Monday in the absence of key macroeconomic releases and with traders eyeing the Swiss National Bank’s (SNB) monetary policy decision, due next Thursday.

Trading volumes remain at low levels on Monday with the Japanese market closed for bank holidays, while investors ponder a wave of rate hikes by some of the world’s major central banks, including the Federal Reserve (Fed) last week.

The US central bank hiked interest rates by 25 basis points, pushing the Federal Funds rate to three-year highs at the 3.75%-4% level. The surprise, however, was the hawkish tone of Chairman Kevin Warsh, who reaffirmed the Fed’s commitment to bring inflation to the 2% target, and boosted market expectations of further interest rate hikes in the coming months.

The SNB is expected to leave rates at 0%

This week, the focus shifts to the Swiss National Bank, which is expected to leave interest rates at the current 0% for the rest of the year, and most likely, at least during the first half of 2027.

The main interest of the event will be President Martin Schlegel’s Press release for hints of a potential policy change in the mid-term. Schlegel observed earlier this month that inflationary pressures have increased somewhat in recent months, but that it remains within the stability range, which allows the bank to stand pat for some time.

This stance contrasts with the hawkish shift performed by the Fed, which has highlighted the monetary divergence with the SNB and presented the CHF’s candidacy as a funding currency for carry trades, especially now that the BoJ seems resolved to keep tightening borrowing costs. This might bring sustained bearish pressure to the Swissie.

In the calendar on Monday, the main event will be Chicago Fed President Austan Goolsbee’s speech at the Official Monetary and Financial Institutions Forum event in London. Goolsbee will speak about “Monetary policy in an uncertain world,” and might provide some clues about the timing of the next Fed rate hike.