USD/CHF dropped 0.35% to 0.8070 as more investors sought safe-haven assets like the Swiss Franc. This shift is mainly due to US political uncertainties and Speaker Johnson’s less hopeful view on ending the government shutdown. Even with positive economic data from the US, the market remains aware of global risks and cautious comments from the Federal Reserve. Cleveland Fed President Beth Hammack mentioned that getting to a 2% inflation target might take two to three years, which means we will need to keep some tight policies in place.

Swiss National Bank’s Stance

In Switzerland, the Swiss National Bank is confident about inflation staying strong. Chair Martin Schlegel said prices might rise slightly in the next few quarters, while interest rates stay stable. This confidence helps the Franc maintain its role as a safe-haven currency during global uncertainties. Because of these factors, USD/CHF continued to decline, staying below 0.8100 after hitting an eleven-week high earlier. The Swiss Franc has performed best against the New Zealand Dollar compared to other major currencies. With US political uncertainty pressuring the dollar, it may be wise to adopt strategies that benefit from a lower USD/CHF exchange rate. The risk of a government shutdown is leading to a traditional flight-to-safety, making the Swiss Franc more appealing. Buying put options with strike prices below the current 0.8070 level could be a smart move in the coming weeks. This situation resembles the political deadlock we experienced in the fall of 2023, where the dollar weakened temporarily before a last-minute agreement. We’re seeing implied volatility on dollar options rise to 9.5%, up from last month’s 7.8% average, indicating that traders expect more market turbulence. This environment supports short-dollar positions against stable currencies like the Franc.

Traders’ Strategy and Market Response

The Swiss Franc’s appeal isn’t just based on speculation; recent CFTC data shows that large traders have increased their net long positions for three consecutive weeks. The Swiss National Bank’s consistent approach to interest rates stands in contrast to the uncertainty surrounding the Fed, which is especially valuable as Switzerland’s unemployment holds steady at 3% for two months. Next week’s US CPI data will be closely watched, as a higher-than-expected inflation number could complicate the Fed’s narrative and create more market jitters. The 0.8100 level now seems to be a strong ceiling for the pair. If the current cautious market atmosphere continues, a drop below 0.8050 could lead to testing the 0.7900 support level we saw earlier in the year. Create your live VT Markets account and start trading now.

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