Currencies – Interest Rate Shift Shifts the Balance of Power

EUR/USD – Higher Interest Rates on Both Sides of the Atlantic

The EUR/USD currency pair is currently heavily influenced by renewed monetary policy tightening. The ECB raised its key interest rate by 25 basis points in September. This move is driven in particular by persistent inflation risks resulting from higher energy prices and geopolitical tensions. The ECB now expects an average inflation rate of 3.0% for 2026 and has signaled that inflation is likely to remain above its target for the time being.

The U.S. Federal Reserve has also changed course, raising the federal funds rate by 25 basis points to 3.75–4.00% in mid-September. The U.S. economy remains robust, while inflation is above the central bank’s target. The key factor determining the future course will be whether inflationary pressures ease or whether further monetary policy measures become necessary.

This development has recently provided fresh support for the dollar. EUR/USD is currently trading around 1.14. The key factor in the coming months will likely be which central bank needs to tighten policy more aggressively. Since both the Fed and the ECB are taking action against rising inflation rates, the previously clear divergence in monetary policy has diminished. However, the continued strength of the U.S. economy and the higher absolute interest rate level suggest some short-term support for the dollar.

Conclusion on EUR/USD: In the short term, we continue to see the U.S. dollar as well supported due to higher interest rates and the more robust U.S. economy. A significant weakening of the dollar appears less likely for the time being. In the medium term, however, the trend is likely to depend increasingly on whether the Fed or the ECB reacts more strongly to inflationary pressures

EUR/CHF – Interest Rate Differential Increasingly Favors the Euro

For the EUR/CHF pair, the fundamental environment has changed compared to the spring. The SNB once again left its key interest rate unchanged at 0% in September. At the same time, Swiss inflation remains comparatively low and is within the range the SNB considers compatible with price stability. The National Bank therefore currently sees no immediate reason to tighten its monetary policy.

In contrast, the ECB has raised interest rates again. The resulting widening interest rate differential between the euro and the franc makes euro-denominated investments relatively more attractive and generally points to some stabilization or appreciation of the euro against the franc.

EUR/CHF is currently trading around 0.94. At the same time, the Swiss franc remains structurally supported. Should geopolitical risks escalate again, its role as a safe haven is likely to quickly come to the fore once more.

The SNB has also reiterated that it can intervene in the foreign exchange market if necessary. This means it continues to have a tool at its disposal to counteract excessive appreciation of the franc.

Conclusion on EUR/CHF: The euro’s higher interest rates improve its position relative to the Swiss franc. This points to a stabilization of the EUR/CHF exchange rate and reduces upward pressure on the Swiss franc in the short term. Nevertheless, we do not expect the euro to strengthen significantly, as the Swiss franc remains structurally in demand due to its safe-haven status and solid fundamental conditions.

USD/CHF – U.S. Interest Rate Advantage Meets the Safe-Haven Swiss Franc

In the case of USD/CHF, the divergence in monetary policy is particularly pronounced at present. While the Fed has raised its benchmark interest rate to 3.75–4.00%, the SNB remains at 0%. This creates a significant interest rate advantage in favor of the U.S. dollar.

This supports the dollar against the Swiss franc. At the same time, the structural strength of the Swiss franc should not be underestimated. As geopolitical or economic uncertainties increase, the Swiss currency remains one of the most important safe-haven currencies.

The future performance of USD/CHF is therefore likely to be driven by two opposing forces: the significant U.S. interest rate advantage and the robust U.S. economy on the one hand, and safe-haven demand for the Swiss franc on the other.

Conclusion on USD/CHF: In the short term, the large interest rate differential points to support for the U.S. dollar against the franc. At the same time, the dollar’s appreciation potential is likely to remain limited, as the franc quickly regains favor during periods of heightened uncertainty. USD/CHF thus remains caught between the dollar’s carry advantage and the franc’s safe-haven premium.

Overall Conclusion

Monetary policy conditions have changed significantly in recent months. The Fed and the ECB are responding to the renewed rise in inflation risks with tighter monetary policy, while the SNB is keeping its key interest rate at 0%. As a result, interest rate differentials are regaining importance as drivers of exchange rates.

In the short term, the U.S. dollar remains supported by higher interest rates and the robust U.S. economy. The euro is also receiving increasing support against the franc due to the European interest rate advantage. The Swiss franc, on the other hand, remains structurally strong despite the lack of an interest rate advantage and is likely to remain in demand, particularly amid geopolitical or economic uncertainties.

For portfolios, this means: USD positions are currently benefiting more from the interest rate advantage, while EUR investments have become more attractive relative to the CHF; meanwhile, the Swiss franc retains its important role as a currency of stability and diversification.

Mimi Haas, Lic. rer.pol. HSG, M.A. in Banking and Finance HSG, Partner

_{Sources: MarketMap and Bloomberg
As of: September 28, 2026}