The US Dollar is falling sharply as risk appetite rises after the US government has reopened. The USD/CHF pair has dropped to 0.7910, a decline of 0.80% for the day, marking its seventh consecutive day of losses and reaching a three-week low. Operations in the US are resuming after President Trump signed a funding bill, ending a 43-day government shutdown—the longest in recent history. This political resolution has decreased the US Dollar’s safe-haven appeal as optimism grows.

Impact of Government Reopening

With the government back in operation, there is still uncertainty as federal agencies work to release delayed economic data. Important reports, like the jobs and inflation figures for October, may be published later than expected. This could complicate the Federal Reserve’s assessment of the economy. While expectations for a Fed rate cut in December have decreased, it hasn’t helped the US Dollar, as market sentiment improves. Fed officials remain cautious due to ongoing concerns about labor market trends and inflation. The Swiss Franc is benefiting from low inflation and steady growth prospects. Swiss producer prices are currently deflating, which keeps domestic price pressures low, according to recent data. The Swiss National Bank signals confidence in future inflation, reducing the likelihood of negative interest rates. The US Dollar still holds strong against the Canadian Dollar.

Market Response

We are witnessing a familiar trend: the US Dollar weakening after recent breakthroughs in budget negotiations, which have boosted risk appetite. This situation resembles what happened after the 2019 government shutdown, where a similar resolution caused a significant drop in the dollar. This week, the Dollar Index (DXY) has fallen to around 101.50, indicating this newfound optimism. The easing of political tensions suggests that implied volatility in currency markets might decrease in the upcoming weeks. Traders may consider strategies to profit from declining volatility, such as selling straddles on major USD pairs. After the 2019 government shutdown, we also observed a similar decrease in volatility once the immediate uncertainty was resolved. For traders with a specific direction in mind, the most likely path for the USD/CHF appears to be downward as the pair tests the 0.8800 level. Buying put options on USD/CHF or setting up bearish put spreads could be effective strategies for anticipating further declines. This aligns with a sharp drop we saw in the pair under similar “risk-on” conditions in the past. The Swiss Franc’s underlying strength also supports this outlook, as Swiss inflation remains low and steady at 1.4% year-over-year. This stability, along with expectations that the Swiss National Bank will keep rates stable in December, makes the franc an appealing currency. The current fundamentals for the CHF are as solid now as they were before. However, caution is necessary as the market prepares for upcoming US economic data, particularly the November jobs report expected in early December. October’s Consumer Price Index (CPI) was 2.9%, slightly below expectations. The Federal Reserve will closely monitor labor market data for its next decisions. Any signs of unexpected economic weakness could complicate this optimistic risk-on outlook. Create your live VT Markets account and start trading now.

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