The Swiss franc (USDCHF) hit its highest level against the dollar in nearly 9 years (!) on Friday, December 22, with the haven currency supported in recent weeks by expectations that the Federal Reserve will cut rates more aggressively than the Swiss National Bank (classic rate divergence expectation case). Against the euro, the franc rose to 0.94112.

At some point, the U.S. dollar fell to 0.8545 franc, slipping below the support of July this year and hitting the lowest level since that memorable day in January 2015, when the Swiss National Bank caused significant volatility in the currency by ending its policy of holding a pegged (minimum guaranteed) exchange rate against the euro.

The franc has outperformed all of its Big Ten peer currencies this year, helped by the view that the SNB's preference for a stronger local currency will keep it afloat.

Last week, the Swiss central bank said it was still willing to continue intervening in foreign exchange markets, but added that foreign exchange operations could go both ways after focusing on sales from mid-2022 to minimize inflation risks.

What’s important is that Swiss inflation has remained within the central bank's target range of 0 to 2% since June, confirming its decision to keep rates unchanged since the last hike at its quarterly meeting in June. As the economy slows, markets expect the SNB to start cutting rates in March.