USD/CHF rose on Wednesday as the US Dollar strengthened, which weighed on the Swiss Franc. The pair traded near 0.7746 after bouncing from an intraday low of 0.7719. Traders scaled back expectations for near-term Federal Reserve rate cuts because inflation concerns remain. Chicago Fed President Austan Goolsbee said he is cautious about cutting rates too soon without clear evidence that inflation is moving back toward the 2% target.

Fed Policy Expectations

Markets expect the Fed to keep rates unchanged at the March and April meetings. They are still pricing in almost 50 basis points of cuts by year-end. CME FedWatch shows the probability of a June cut at about 40%, down from about 50% a week ago. July is priced at about 65%. In Switzerland, the ZEW Survey – Expectations index rose to 9.8 in February from -4.7 the month before. SNB Chairman Martin Schlegel said a few months of negative inflation are possible, but he expects inflation to rise in the coming quarters. He also said the SNB is ready to intervene in currency markets. No major US data is scheduled for Wednesday, so focus will be on Fed comments later in the day. Attention then shifts to US PPI data and Switzerland’s Q4 GDP report on Friday. Back in early 2025, markets were debating Fed policy when USD/CHF was trading near 0.7750. Now, with the pair holding near 0.8950, the key driver has been policy divergence. The Swiss National Bank cut rates twice in late 2025 while the Fed stayed on hold, widening the interest rate differential.

Policy Divergence And Market Implications

The “sticky inflation” warnings from Fed officials in early 2025 proved accurate, as core inflation has stayed above target. January 2026 CPI showed inflation running at 2.9% year over year. As a result, the Fed is expected to keep its policy rate in the 4.75–5.00% range for the foreseeable future. This is very different from what markets expected a year ago, when they were pricing in substantial easing. In Switzerland, last year’s SNB comments about possible negative inflation were followed by action aimed at preventing deflation. Swiss inflation is currently a modest 1.3%, giving the SNB little reason to move away from its current 1.00% policy rate. The SNB’s willingness to intervene in FX markets, as noted last year, also continues to limit franc strength. For derivatives traders, this backdrop makes long USD/CHF positions attractive because of the positive carry. One way to express this view is to sell out-of-the-money CHF call options (the same as USD/CHF put options). This can generate premium while the rate differential remains supportive. The “structural headwinds” tied to US trade policy that were a concern in 2025 have now shown up in ongoing tariff talks. That added volatility can make premium-selling strategies more appealing. In the weeks ahead, we will watch the next US Producer Price Index release for signs that inflation remains persistent. Switzerland’s final Q4 2025 GDP figures are also due next week. A weak report would likely reinforce the SNB’s dovish stance. Any data that supports this policy divergence could provide further support for USD/CHF. Create your live VT Markets account and start trading now.

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