Weakness of Swiss Franc Driven by Rising Interest Rate Expectations Abroad

The weakness of the Swiss franc is analyzed to stem more from rising interest rate expectations in the United States and the Eurozone than from changes in Swiss interest rates. The Swiss National Bank (SNB) maintained the policy rate at 0% during its monetary policy assessment on June 18 and expressed its intention to intervene in the foreign exchange market. The franc's exchange rate is a key variable in Swiss monetary policy, as a sharp appreciation could burden import prices and the price competitiveness of export companies. In its meeting on July 16, the SNB indicated that financial markets expected higher interest rates from the U.S. Federal Reserve and the European Central Bank. This has widened the interest rate differential between Switzerland and other countries, leading to a depreciation of the franc against the euro and the dollar since March. Rising interest rate expectations abroad can reduce the interest attractiveness of Swiss assets and contribute to the weakness of the franc. The depreciation of the franc helps alleviate pressure on import prices and reduces the burden on export companies. The SNB defines price stability as an annual consumer price inflation rate of less than 2% and has provided inflation forecasts for the period from 2026 to 2028. The market analyzes that the franc may gain attention as a funding currency for carry trades, while its characteristics as a safe asset may also be highlighted. The future movement of the franc is expected to vary according to interest rate expectations in the U.S. and the Eurozone, global bond market instability, and the SNB's principles for responding to the foreign exchange market.