Market Risk Sentiment
S&P 500 futures climbed 0.6% in Asia after a small fall on Tuesday, pointing to a risk-on tone. Asian share markets were also higher at the time of writing. In US data, the flash S&P Global PMI for March showed slower services activity, which pulled down the Composite PMI. This indicated softer momentum in parts of the US economy. The Swiss Franc weakened against most major peers, with exceptions versus antipodean currencies. SNB Chairman Martin Schlegel said on Tuesday the SNB has increased readiness to intervene in foreign exchange markets to limit CHF strength, according to Reuters. We recall that back in 2025, Middle East conflicts created a flight to safety that strongly benefited the US Dollar, pushing USD/CHF toward the 0.7900 level. During that time, the Swiss National Bank also signaled its readiness to weaken the franc, creating a clear upward pressure on the pair. This dynamic of geopolitical risk and central bank divergence is a key lesson from that period.Central Bank Policy Divergence
Today, the situation has evolved but the core themes remain relevant for our strategy. The USD/CHF is trading much higher, currently around 0.9250, driven by a persistent interest rate differential that we have been watching. While the conflicts of 2025 have subsided, new tensions in the South China Sea are keeping the US Dollar supported as a primary safe haven. The fundamental driver is the starkly different paths of the central banks. US inflation data from February 2026 came in at a sticky 2.8%, keeping the Federal Reserve from cutting rates, while Swiss inflation is just 1.2%, well below target. This policy divergence, with the Fed funds rate at 4.50% and the SNB’s at 1.25%, makes holding US Dollars far more attractive than Swiss Francs. Given this outlook, buying USD/CHF call options appears to be a prudent strategy for the coming weeks. We should look at strikes around the 0.9400 level with expirations in late May or June to capture expected upward movement. This offers a defined-risk way to profit from the pair’s continued strength. Implied volatility has ticked up slightly due to the geopolitical climate, making options a bit more expensive. An alternative for those willing to take on more direct risk would be selling out-of-the-money puts below the 0.9100 level. This strategy allows us to collect premium based on the view that the strong interest rate differential will prevent any significant downside. For longer-term positions, using futures contracts to go long USD/CHF remains a viable approach. The significant positive carry, earned from the interest rate gap between the US and Switzerland, provides an additional return on top of any spot price appreciation. This makes holding a long position structurally profitable as long as the policy divergence continues. Create your live VT Markets account and start trading now.
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