The Swiss National Bank (SNB) left its benchmark interest rate unchanged at 0% during its latest monetary policy meeting, a move that was widely anticipated by the market [1][2][3]. Alongside the rate decision, the SNB notably softened its foreign exchange intervention language, shifting from an 'increased willingness to intervene' to being 'also willing to be active in the foreign exchange market as necessary' [1]. This adjustment signals a retreat from aggressive intervention, attributed to the Swiss Franc's (CHF) overvaluation and recent appreciation trends [1].
Following the announcement, the Swiss Franc weakened significantly, hitting fresh four-month lows against the US Dollar. The USD/CHF pair surged to 0.8269, its highest level since late May, after rebounding from session lows just below 0.8530 [2]. The EUR/CHF also rebounded by about 0.3% in response to the SNB's policy update [1]. Market data showed the CHF as the weakest major currency on the day, particularly against the New Zealand Dollar, and down 0.22% against the US Dollar [3].
The SNB's policy statement highlighted that inflation accelerated in August, mainly due to higher oil prices, and is expected to remain elevated for some time before declining in 2027 [2][3]. The bank's inflation forecasts project average annual inflation at 0.7% for 2026, and 0.8% for both 2027 and 2028, which is over 1 percentage point below the European Central Bank's projections [1]. Despite an 'exceptionally strong' Swiss GDP in the second quarter, driven by robust performance in the chemicals and pharmaceutical sectors, the SNB expects only moderate growth in the coming quarters amid high uncertainty and inflationary pressures [2][4].
The divergence between SNB and US Federal Reserve policy is a key driver of the Franc's weakness. While the SNB maintains a dovish stance, US economic data has increased expectations of further Fed tightening, with futures markets pricing a nearly 70% chance of a 25 basis point rate hike in October and almost fully pricing in at least one more hike before year-end [2]. SNB President Martin Schlegel noted that the low interest rate environment boosts the Franc's appeal for carry trades, though Petra Tschudin stated that there is not a large increase in Swiss Franc carry trade activity at present [2][4].
Forward-looking statements from SNB officials emphasize ongoing risks from global economic uncertainty, particularly due to the situation in the Middle East, and the potential for higher-than-expected energy prices to keep inflation elevated [3][4]. The SNB expects moderate growth ahead, with external stimuli likely to play a role, but acknowledges that trade policy and exchange rate developments add to the uncertainty [4].
CONCLUSION
The SNB's decision to hold rates steady and dial back its intervention rhetoric triggered a sharp decline in the Swiss Franc, reflecting market concerns over policy divergence with the US Federal Reserve and persistent inflation risks. Despite strong recent GDP data, the SNB projects only moderate growth ahead amid global uncertainties. The market takeaway is a bearish outlook for the Franc in the near term, especially against the US Dollar.