USD/CHF traded near 0.7815 on Tuesday, up 0.46% on the day, as demand for the US Dollar rose amid new Middle East tensions. Sentiment weakened after US President Donald Trump said the US-Iran ceasefire was on “life support”, and CNN reported officials were considering a return to major military action.
Safe-haven demand supported the Dollar, with the US Dollar Index rising towards 98.30. The move also followed firmer expectations of tighter Federal Reserve policy.
Us Inflation Focus
Markets are waiting for the US Consumer Price Index for April. Forecasts see annual inflation at 3.7% versus 3.3%, with core inflation at 2.7% versus 2.6% in March.
In Switzerland, inflation rose for a second month but stayed below the Swiss National Bank’s 2% target. Annual inflation was 0.6% in April after 0.3% in March, while core inflation eased to 0.3%.
MUFG said the Swiss Franc has lagged since the start of the Middle East war, with the SNB signalling it may curb currency gains. SNB Governor Martin Schlegel said medium-term price pressures had “hardly changed.”
MUFG also said a long closure of the Strait of Hormuz and higher energy prices could lead to tighter SNB policy in coming months. Money markets are pricing in a greater chance of an SNB rate rise by year-end.
Shift In Policy Expectations
Looking back to this time in 2025, we saw the market react strongly to geopolitical headlines, which pushed USD/CHF up towards 0.7815. The dominant view was that a hawkish Federal Reserve and safe-haven demand would keep the US Dollar strong. The US Dollar Index was reflecting this sentiment, climbing toward 98.30.
That view was confirmed when the US Consumer Price Index for April 2025 came in hot at 3.9%, beating expectations and cementing the Fed’s “higher-for-longer” stance through the end of that year. This interest rate advantage kept upward pressure on the dollar for several months. By contrast, the Swiss National Bank remained dovish, just as we expected, and did not raise rates in 2025 as inflation remained muted.
Now, the economic picture has changed considerably. With recent data showing US Gross Domestic Product (GDP) growth slowing to an annualized rate of 1.3% in the first quarter of 2026, the narrative has flipped. Current fed funds futures are pricing in a greater than 70% chance of at least one Fed rate cut by September 2026.
This reversal in monetary policy expectations suggests traders should position for a weaker US Dollar. The policy divergence that drove USD/CHF higher in 2025 is now unwinding, creating a potential tailwind for the Swiss Franc. We believe this changing dynamic will be a primary driver in the coming weeks.
Given this outlook, traders should consider derivative strategies that gain from a fall in the USD/CHF pair. Buying put options on USD/CHF could be an effective way to position for downside while managing risk. This is a direct reversal of the profitable long-dollar strategies that worked so well this time last year.
