The USD/CHF pair has fallen to about 0.8045, with the Swiss Franc gaining strength as many expect a new trade deal between the US and Switzerland. This shift happened during the late trading session in Asia on Tuesday, fueled by rising hopes for progress on the trade agreement. A report suggests the US and Switzerland could announce this deal within two weeks. This deal might cut US tariffs on Swiss imports from 39% to 15%. Lower tariffs would make Swiss goods more competitive worldwide. Additionally, the US Senate has sent a government funding bill to the House of Representatives, which is expected to approve it by Wednesday.

The Fed Rate Cut Odds

The US Dollar Index remains steady around 99.60 as the market watches for potential interest rate cuts from the Federal Reserve. There is a 62.4% chance that the Fed will lower rates by 25 basis points to 3.50%-3.75% in December. So far this year, the Fed has already cut rates by 50 basis points, primarily due to concerns about the job market. Tariffs are fees on imports and are different from taxes paid at the time of purchase. Economists have mixed opinions on tariffs, as they can lead to higher prices and trade tensions. US President Donald Trump has indicated he will use tariffs to strengthen the US economy while also aiming to lower personal income taxes. We are seeing the Swiss Franc gain value with hopes of a trade deal with the US, pulling the USD/CHF toward 0.8045. With a deal expected soon to reduce tariffs on Swiss goods, it might be a good idea to buy put options on USD/CHF. A strike price near 0.7950 with a December expiry could help us benefit from potential declines. Recent data shows that Swiss exports to the US, especially in pharmaceuticals and machinery, have already risen by 8% year-over-year, despite the high tariffs. A cut from 39% to 15% could significantly boost this trend, likely pushing the currency pair below 0.8000. We saw similar sharp currency changes during the US-China trade discussions in 2019.

Volatility and Trade Strategies

On the flip side, the US Dollar is weak due to a softening job market. The latest jobs report showed a modest gain of only 95,000 jobs, much lower than expected, which strengthens the case for a Federal Reserve rate cut next month. This suggests we may see a lower USD/CHF, as monetary policies between the US and Switzerland begin to diverge. The nature of this trade announcement means we should prepare for sudden market swings. Implied volatility on USD/CHF options is already increasing, so it’s wise to act quickly. If the deal is confirmed, the pair could test the year’s low around 0.7850. However, we also need to be ready for the risk that the deal might not happen. If negotiations stall, we might see a sharp rebound in USD/CHF towards the 0.8200 resistance level. This is why using options is a sensible strategy, as it limits our potential losses to the premium paid. Another important factor is the Swiss National Bank (SNB), particularly since Switzerland’s recent inflation rate was a modest 1.5%. A rapidly rising Franc could bring inflation down further, which might concern the SNB. For now, the narrative around the trade deal is the key factor for the next two weeks. Create your live VT Markets account and start trading now.

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