A Bloomberg source story, highlighted by ING’s Chris Turner, suggests that insiders at the Swiss National Bank (SNB) expect the policy rate to remain unchanged at 0.00% until the end of 2027, a view that ING also forecasts [1]. This prolonged low-rate environment is seen as a driver for Swiss Franc (CHF) underperformance, especially as global interest rates rise, widening interest rate differentials against the franc [1]. Turner notes that this scenario makes the CHF a prime funding currency for carry trades, with investors increasingly favoring Swiss francs over yen due to cheaper funding costs and reduced intervention risk from the Bank of Japan [1]. Additionally, the USD/CHF pair is described as a popular vehicle to express hawkish Fed views, with potential for the pair to reach 0.85 in August if the Fed hikes [1].
Meanwhile, BNY strategists John Velis and David Tam expect the Federal Reserve (Fed) to keep the federal funds rate unchanged at the upcoming July FOMC meeting, though they acknowledge it is a close call [2]. Market pricing assigns slightly more than a one-third chance of a hike this week, while September pricing puts the probability of a hike at nearly three-in-four [2]. The strategists emphasize that future Fed moves will be driven by incoming US inflation data and potential energy shocks stemming from renewed Middle East hostilities [2]. They note that two more CPI and two more PCE deflator releases before September 16 will likely influence the Fed’s decision, and suggest it is prudent for the Fed to wait for more data before acting [2].
BNY also discusses the potential market reaction to a Fed hold, stating it will depend on whether the hold is presented as 'hawkish' or more reticent, with recent comments from the new Chair suggesting the latter [2]. The uncertainty around the Fed’s next move, combined with the SNB’s expected prolonged rate hold, reinforces the Swiss franc’s role as a funding currency and highlights the USD/CHF pair as a key instrument for expressing views on US monetary policy [1][2].
Both articles underscore the importance of upcoming US inflation data and energy price developments, with ING and BNY agreeing that central bank decisions will be heavily influenced by these factors in the coming months [1][2].
CONCLUSION
The SNB’s anticipated rate hold through 2027 is expected to drive Swiss franc underperformance and increase its appeal as a funding currency, while the Fed’s near-term policy remains uncertain and data-dependent. Market participants are closely watching US inflation and energy prices, with the USD/CHF pair positioned as a key vehicle for expressing hawkish Fed views. Overall, central bank guidance and geopolitical developments will be critical for currency and rate markets in the months ahead.