FX Daily: Swiss franc becomes favourite funding currency
The desk argues that the Swiss franc (CHF) is poised to become the favored funding currency amid a hawkish shift anticipated from the Federal Reserve at the upcoming FOMC meeting. Citing the source commentary, the dollar remains supported as traders adjust positions, with a near 40% probability priced for a rate hike. Notably, the Swiss National Bank's commitment to a 0.00% policy rate through 2027 further reinforces the bullish outlook for the CHF. This dynamic places USD/CHF as a potential leader if the Fed signals a stronger tightening path. Per the full note source, the dollar's resilience appears to cap EUR/USD near current levels as traders watch for confirmations from upcoming data releases.
What the desk is arguing
The desk posits that the Swiss franc is likely to emerge as the preferred funding currency following dovish signals from the Swiss National Bank. The stance of the Fed hints at increasing short-term dollar demand, positioning USD/CHF to capitalize on this trend, as stated in the source. A hawkish Fed, especially given the shifting rate expectations, creates a supportive backdrop for the dollar, while the CHF's status as a stable funding source remains intact.
The current market perception is reflected in the growing probability of a Fed hike, with a cited 40% chance according to market pricing. In this context, we also need to factor in market positioning ahead of the FOMC meeting, where potential adjustments could lead to increased volatility in USD/CHF.
Where it sits in our coverage
Our current consensus for USD/CHF places it at 0.8100, with a range spanning from 0.7600 to 0.8200. Notably, firms like goldman and nomura have set their Dec-26 targets at 0.7600 and 0.7800, respectively, which reflects a noteworthy alignment around the more cautious end of projections.
This view aligns closely with the broader cross-firm consensus, with most forecasts hovering around the median target level. Currently, our target sits slightly above the middle of the range, indicating an expectation for higher volatility in USD/CHF trading potentially incentivized by Fed announcements.
How other firms see it
Firms such as morganstanley and deutschebank share a bullish outlook for the Swiss franc, anticipating levels around 0.7900 for March 2026. Conversely, firmly more conservative projections from bofa position the CHF lower at 0.8000, suggesting a divergence in outlook.
The USD/CHF dynamics will mirror sentiments in EUR/USD as the ECB also contemplates its own rate path, with additional influences naturally stemming from broader market reactions to the Fed's decisions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The CHF is gaining favor as a funding currency amidst projected dollar strength.
- 02Market anticipates a hawkish FOMC meeting, influencing expectations and positioning.
- 03Consensus targets for USD/CHF largely remain below current levels, indicating potential for further upside.
- 04Position adjustments leading up to the Fed meeting may heighten volatility.
Market implications
Traders should monitor USD/CHF levels around 0.8100, particularly in the context of potential Fed hawkishness. Additionally, watch for any shifts in positioning ahead of the next FOMC meeting, which could signal volatility. The CAD may also provide insights as related data comes out.
Risks to this view
A reversal in sentiment could occur if the Fed delivers a more dovish message than expected, undermining dollar strength and causing the CHF to lose its appeal. Additionally, significant market data coming in under expectations could also detrimentally adjust positioning across both USD/CHF and broader FX pairs.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Lloyds Bank | Bearish | 1.1200 |
Rabobank | Bearish | 1.1400 |
Bank of America | Bearish | 1.1240 |
Articles FX Daily: Swiss franc becomes favourite funding currency Published 07:30 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar remains bid as investors position for a hawkish FOMC tomorrow, if not a rate hike. And source stories that the Swiss National Bank will keep its policy rate unchanged at 0.00% until the end of 2027 hit the Swiss franc yesterday. Expect the franc to become the preferred funding currency and USD/CHF to lead the dollar higher if the Fed is hawkish Chris Turner , Frantisek Taborsky and Francesco Pesole The dollar remains bid as investors wake up to the risk of a Fed hike tomorrow USD: Dollar staying bid into the FOMC Even though US rates are not moving much this week, it feels like the FX market is taking the possibility of a Fed hike tomorrow more seriously.
The chances of that hike are now priced at nearly 40%. There are lots of credible opinions out there in favour of a hike, citing the benefits of an early Fed move to boost the Fed's inflation-fighting credentials and ultimately lessen the need for subsequent tightening. The Fed's lack of communication has certainly created fertile ground for such speculation – a theme we referenced in this month's FX Talking: Dancing in the dark .
On the US calendar today are the weekly ADP job numbers, the advanced trade balance for June and consumer confidence for July. After a low initial jobless claims last week, the market is probably most interested in today's ADP data, where any uptick in this series could prove a mild dollar positive. Overall, we doubt investors will want to let go of dollar balances ahead of tomorrow's Fed meeting.
They will, however, be keeping their eyes on lower oil prices and also the sell-off in chip stocks as both Chinese competition in chip production and the circular nature of US hyper-scaler megadeals come under scrutiny. DXY can remain bid near 101.50, with an outside risk of pushing up to June's 101.80 high. Chris Turner EUR: Swamped by the Fed story While this week's lower energy prices will be a boon to Europe, EUR/USD is failing to find any benefit.
That's because the Fed story is dominating. It is hard to see that dynamic switching this week, where a break of 1.1360 support opens up a retest of the 1.1325 low. On the euro crosses, we see EUR/GBP holding gains near 0.8550.
We published an article last week explaining why we think EUR/GBP will be heading up to 0.88 later this year. And this week's Bank of England meeting could serve as a reminder that the bar is high for a rate hike – something which could weigh on sterling. Chris Turner CHF: Unusual source story emerges Yesterday afternoon, Bloomberg ran a source story that insiders at the Swiss National Bank felt the SNB would keep the policy rate unchanged at 0.00% until the end of 2027.
Sources & References
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