USD/CHF rose for a second session, trading near 0.7970 in Asian hours on Monday as the Dollar stayed firm on renewed safe-haven demand after Israel said a missile launched from Yemen towards Israeli territory was intercepted. Air raid sirens were reported in Tel Aviv, as conflict dynamics involving the Iran-backed Houthis re-emerged. Separately, Israel Defense Forces reportedly struck military targets in Iran after an Iranian missile salvo aimed at northern Israel, despite US President Donald Trump’s criticism of earlier strikes in Beirut and his push for diplomacy between Prime Minister Netanyahu and Tehran. Iran had fired multiple rounds of missiles and warned against further action in Lebanon; Israel said all incoming missiles were intercepted with no casualties, while the escalation unsettled energy markets.
The Greenback also drew support from stronger US labour data that kept rate-rise expectations in play at the Federal Reserve. Nonfarm Payrolls rose by 172,000 in May, while the prior month was revised to 179,000 from 115,000 and the Unemployment Rate held at 4.3%. The Swiss Franc weakened after May inflation printed at 0.6% versus a 0.8% forecast, tempering Swiss National Bank tightening expectations; markets now price the policy rate staying at 0% through 2026. Separately, CHF remains closely linked to the Eurozone, with some models putting EUR-CHF correlation above 90%, and the 2011–2015 EUR peg ended with a move exceeding 20%.
Safe-Haven Flows And Monetary Policy Divergence
Given the renewed conflict in the Middle East, we are seeing a classic flight to safety, which is strengthening the US dollar. This, combined with a robust US labor market, creates a powerful tailwind for the greenback. We believe the USD/CHF pair is poised for further gains as these dynamics unfold in the coming weeks.
The divergence in monetary policy between the US and Switzerland is becoming increasingly stark. With US Nonfarm Payrolls holding firm and the unemployment rate at a low 4.3%, market pricing now indicates a 65% probability of a Federal Reserve rate hike by year-end. This contrasts sharply with the situation in Switzerland, creating a clear trading signal for us.
On the other side of the pair, the Swiss franc is weakening due to dismal inflation data. May’s 0.6% inflation reading reinforces our view that the Swiss National Bank will keep its key interest rate at 0% for the foreseeable future. This policy gap between a hawkish Fed and a dovish SNB is the central driver of USD/CHF strength.
Market Volatility, Derivatives, And Energy Impact
For derivative traders, this environment points toward increasing market volatility, which we see reflected in the VIX index jumping from 14 to over 22 in recent days. We should consider buying call options on USD/CHF to capitalize on the expected upward trend while limiting downside risk. Given the rise in option premiums, using bull call spreads could be a cost-effective alternative.
The escalating geopolitical tensions have also caused a predictable spike in energy markets, with Brent crude surging past $95 a barrel on the news of missile exchanges. This adds to global inflationary pressures and reinforces the dollar’s role as the world’s primary reserve currency. The current situation supports long positions in the dollar against currencies with a dovish central bank, like the Swiss franc.
