Fed Rate-Cut Bets Push USD/CHF Higher as Swiss Economy Stumbles

CHF Weakens Amid Growth Concerns

USD/CHF is trending higher on Friday, trading around 0.8060 with a 0.15% daily gain. The pair continues its weekly uptrend, catching momentum from mounting expectations of substantial interest rate cuts from the Federal Reserve over the coming months.

The culprit behind this USD strength? Growing conviction that the Fed will adopt a dovish stance. The CME FedWatch tool now shows an 85% probability of a 25-basis-point cut at December’s meeting—a dramatic shift from just 40% odds a month ago. This shift reflects soft US Retail Sales data this week combined with increasingly accommodative signals from Fed policymakers. Market chatter about Kevin Hassett potentially replacing Jerome Powell has further cemented expectations of extended monetary easing through 2026.

Despite a modest recovery on Friday buoyed by stronger US Treasury yields, the US Dollar Index (DXY) remains on track for its worst week since July. Any sustained dollar rallies face headwinds unless macroeconomic conditions shift materially.

Swiss Economy Under Pressure

The Swiss Franc lacks buying momentum as troubling economic data mounts. Switzerland’s Q3 GDP contracted 0.5% quarter-over-quarter, exceeding the 0.4% decline consensus and following a downward revision of the prior quarter to 0.2%. Year-over-year growth has decelerated sharply to just 0.5%, a stark miss from the previously reported 1.3% expansion.

One bright spot: the KOF Leading Indicator improved to 101.7 from 101.03, slightly beating expectations. However, this hasn’t offset the broader economic softening.

The data reinforces market expectations that the Swiss National Bank (SNB) will maintain its policy rate at 0.00% well into 2027, according to analyst forecasts. With the Swiss economy losing momentum, the SNB faces limited room to raise rates—a sharp contrast to any potential Fed stability.

Market Implications

The USD/CHF setup currently favours upside, with the rate-cut narrative supporting US Dollar weakness and CHF facing headwinds from sluggish domestic growth. However, watch Fed communications closely—any hawkish pivot could quickly reverse this dynamic.

Today’s currency performance shows USD posting modest gains against most major pairs, with EUR recording the steepest loss at -0.25% against the greenback.