The Swiss franc is likely to stay stable for now as markets look for clear information about trade relations between the U.S. and Switzerland. So far, Switzerland hasn’t received a formal tariff warning from President Trump, unlike other countries that are facing tariffs. This lack of immediate tariffs provides short-term relief, even though Trump previously threatened a 31% tariff on Swiss goods in April. Recently, the franc has strengthened, indicating market optimism. However, there is still a risk of a 15% tariff, as Trump has suggested this rate for countries not specifically targeted. Commerzbank warns that future tariffs could affect Switzerland’s real economy, even if the currency markets hold steady. Although there hasn’t been any direct announcement, the possibility of tariffs adds an underlying risk to economic stability. We believe the franc’s current stable movement may appear calm to traders, but it could be misleading. The lack of a formal tariff warning has reduced market volatility, making options seem cheaper than the actual risks involved. This uncertain environment creates specific opportunities for those prepared for sudden changes. With Swiss exports to the U.S. exceeding $67 billion in 2023—mainly in tariff-sensitive areas like pharmaceuticals and machinery—the stakes are high. A sudden 15% tariff, as suggested by the administration for some partners, would significantly affect Switzerland’s trade balance. This makes the currency very sensitive to political news. We see an opportunity in buying volatility while it’s historically low. The Swiss Franc Volatility Index (VCHF) has remained near multi-month lows, but the risk of a tariff announcement isn’t fully reflected in current prices. Purchasing long straddles or strangles could be a cost-effective way to prepare for a sharp market move in either direction. Looking at past events from the 2018-2019 trade disputes, unexpected tariff announcements from the previous president caused swift increases in currency volatility. Safe-haven currencies faced significant fluctuations as the market reacted to surprise tweets and unexpected changes in policy. We expect a similar situation could happen here. For those already involved, it’s wise to hedge against sudden value changes. Buying out-of-the-money puts or calls can act as inexpensive insurance against negative moves resulting from a formal announcement from Washington. Analysis from the German bank indicates that the market may be underestimating the potential impact on the real economy. Another factor to keep an eye on is the Swiss National Bank. In June, it cut its key interest rate to 1.25% and has a history of intervening to weaken the franc. If investors shift to the franc for safety after a tariff announcement, central bank action could follow. This creates a complex situation where volatility may increase, but a clear trend may not emerge.

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