The Swiss Franc (CHF) is gaining strength against the US Dollar (USD) due to rising tensions between the US and EU. The US has proposed tariffs on eight European countries, heightening worries of a broader trade conflict. As a result, the USD/CHF is trading at 0.7975, down nearly 0.70%. This situation has decreased confidence in the US Dollar as a safe investment. The US Dollar Index, which tracks the USD against six major currencies, is at 99.11, down 0.20%. US markets are currently on hold, but upcoming economic reports, such as PCE inflation and GDP data, are being closely watched. Swiss inflation data is also important, alongside potential comments from Swiss officials and US President Trump at the World Economic Forum.

The Swiss Franc’s Appeal

The Swiss Franc is attractive because of Switzerland’s stability and neutrality. The Swiss National Bank (SNB) plays a crucial role in determining the Franc’s value through its monetary policies. Additionally, the health of the economy and the Eurozone significantly impact the Franc. Analysts point out a strong correlation between the Swiss Franc and the Euro, as Switzerland’s economy relies heavily on its neighbor. With the USD/CHF now below the key level of 0.8000, market sentiment has clearly shifted. This change stems from new geopolitical risks due to US tariff threats, making the Swiss Franc the top choice for safety in Europe. For traders using derivatives, this means that uncertainty will be the main concern in the upcoming weeks. The rise in uncertainty is leading to higher costs for options. The Swiss Franc’s volatility index (CVIX) has jumped from about 6% to over 9% following this news, and we expect it to rise further. This indicates that purchasing volatility through strategies like straddles, which profit from significant movements in either direction, could be a smart choice before the February 1 tariff deadline. Even as volatility increases, the immediate trend for USD/CHF seems to point lower. We should consider buying put options to take advantage of a possible decline, targeting strike prices of 0.7900 or 0.7850. The weakness of the US Dollar Index, currently around 99.11, supports this idea, as market confidence in the dollar’s safety is waning due to its own trade disputes.

Lessons From The Past

It’s important to remember what we learned during the 2018-2019 US-China trade war. Back then, currency markets were often shocked by news headlines, while traditional economic data took a backseat to political developments. This historical context suggests that making long-term bets can be risky, reinforcing the need for volatility-based strategies over straightforward spot positions. This week’s economic data is now a secondary factor. We will closely watch the US PCE inflation and fourth-quarter 2025 GDP numbers on Thursday. Signs of economic weakness could worsen the dollar’s decline. Similarly, Tuesday’s Swiss Producer and Import Prices will be analyzed for any deflationary effects from the franc’s rapid rise, which could worry the Swiss National Bank. All attention will be on the World Economic Forum in Davos this week for any new statements. Speeches from US or EU officials could trigger quick market shifts, making short-dated weekly options a useful tool for trading this risk. We should also think about hedging any existing long USD positions with CHF call options. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now