Swiss Franc Gains Despite Fading SNB Rate Hike Odds

USD/CHF remains subdued for the second successive day, trading around 0.7890 during the Asian hours on Friday. The Swiss Franc (CHF) strengthened despite softer-than-expected inflation data, which cooled market anticipation of an upcoming Swiss National Bank (SNB) rate hike. May's annual inflation held steady at 0.6%, marking its highest level since late 2024 but missing the 0.8% consensus forecast.

SNB Chairman Martin Schlegel noted that medium-term price pressures remain largely unchanged despite recent short-term upticks. Consequently, investors have adjusted their outlook, now widely expecting the central bank to keep its key interest rate anchored at 0% through the end of the year.

The safe-haven demand supports the Swiss Franc against the US Dollar (USD), which could be attributed to a complex web of developments surrounding a potential US-Iran peace agreement to end recent hostilities. Tensions remain highly elevated following warnings from Iranian Foreign Minister Abbas Araghchi, who declared that the strategic Strait of Hormuz falls within Iranian and Omani territorial waters and asserted that US regional military bases are active targets for retaliation.

Market participants are now awaiting the upcoming US Nonfarm Payrolls (NFP) report for fresh direction. Present projections indicate that the US economy added 85,000 jobs in May, with the unemployment rate expected to hold steady at 4.3%.

Any positive surprises or signs of further labor market strength could prompt traders to bet that the Federal Reserve (Fed) will maintain interest rates higher for longer. Markets are now pricing in nearly a 42% chance of a Fed rate hike in December, according to the CME FedWatch Tool.