A Hawkish Fed And A Dovish SNB Are Driving Gains In USD/CHF

USD/CHF has strengthened sharply, rising 1.3% this week and more than 3.3% since the start of the month. The gains reflect a widening policy divergence between the Federal Reserve and the Swiss National Bank.

The Fed has held its benchmark rate at 5.25-5.50% since July. Officials have pushed back against market expectations for near-term easing. The SNB took the opposite path. It cut its key rate by a quarter point in March to 1.50%. Most economists expect another reduction when the central bank meets next on June 20.

The yield gap between US and Swiss government bonds has widened in the dollar's favor. Ten-year US Treasury notes yield around 4.60%, while similar Swiss debt yields about 1.80%. That spread makes dollar-denominated assets more attractive to global investors and supports the franc's slide.

The dollar's broader advance amplifies the move. The greenback has gained against most major currencies this month as US economic data remained resilient. Weekly jobless claims held below 220,000. The services PMI for May came in stronger than forecast. The Atlanta Fed's GDPNow tracker points to second-quarter growth of 2.4%.

For the Swiss franc, the domestic backdrop is soft. Swiss inflation ran at 1.4% in April, comfortably below the SNB's 2% ceiling. That gives the central bank room to ease further. The SNB has also signaled concern about the franc's strength weighing on exporters, though it has not specified a timeline for further action.