The Swiss franc fell to its lowest level against the dollar since May 2025 on Friday on the prospect of the Swiss National Bank refraining from following its peers in raising interest rates.

The SNB left its policy rate unchanged at 0% on Thursday and appeared to play down inflationary risks while avoiding sending strong signals about the potential for interest-rate increases in future. The central bank also removed its reference to having an "increased willingness" for currency interventions, instead saying it was "willing to be active" in the foreign exchange market as necessary.

The dollar rose to a 16-month high of 0.8298 Swiss francs in Europe's late morning trade Friday while the euro reached a one-week high of 0.9455 francs, according to LSEG data.

"A near-term risk of the SNB being hawkish yesterday has been removed and that understandably has opened up scope for renewed franc selling," MUFG Bank's European head of global markets research Derek Halpenny said in a note.

The SNB's cautious stance on policy tightening comes in contrast to some of its peers, with the European Central Bank and Federal Reserve raising rates this month and signalling further moves. Such monetary policy divergence has recently weighed on the franc.

"Investors now are effectively charged a bigger premium for using the franc as a safe haven and for now investors do not believe that premium is worth paying," MUFG's Halpenny said.

If global yields continue to move higher, the franc could fall further, he said.

Still, money markets fully price an expectation that the SNB will raise rates by 25 basis points by March 2027, LSEG data showed.

However, there are few reasons the SNB will tighten policy in the foreseeable future as markets anticipate, ING currency strategist Francesco Pesole said in a note.

"We think downside risks remain for the franc, with the euro-franc potentially retesting the 0.9480 highs seen earlier in September.

"Dollar-franc is probably where the upside potential is even greater at this point: an October hike from the Federal Reserve could prompt a rally to 0.85 in the near term," he said.

U.S. money markets priced a 66% chance of the Fed raising rates by a quarter point in October and fully price in at least three such increases over the next year, LSEG data showed.