USD/CHF rose to about 0.7890 in the early European session on Monday, supported by a hawkish hold from the US Federal Reserve. Traders are also watching developments in the Middle East. The Fed voted 11-1 to keep interest rates unchanged at 3.50% to 3.75% at its March meeting last week. This was the second meeting in a row with no change, after a series of rate cuts in late 2025.

Middle East Risk And Inflation Pressure

Higher crude oil and energy prices, linked to the US-Israeli war with Iran, have renewed inflation concerns and reduced expectations for Fed cuts. Futures pricing shows a nearly 85% chance of no rate cuts at the April Fed meeting, based on the CME FedWatch tool. At the same time, rising tensions could support the Swiss franc as a safe-haven currency. Iran’s military said it would completely shut the Strait of Hormuz if US President Donald Trump targets Iranian energy facilities. Trump warned on Sunday that he would “obliterate” Iranian power plants if the Strait of Hormuz was not opened within 48 hours. The statements added to market focus on regional risk. Given the Fed’s hawkish pivot away from the rate cuts we saw in late 2025, the path of least resistance for the US dollar appears to be upward. We should consider using options to position for further USD strength against the Swiss franc. The market is pricing in an 85% chance of rates remaining on hold in April, reinforcing this short-term dollar bull case. This shift in central bank policy is being driven by renewed inflation fears from soaring energy prices. Looking back at the spike in early 2022, WTI crude jumped from around $90 to over $120 a barrel in just a few weeks following the invasion of Ukraine. A similar shock seems plausible now, which would force the Fed’s hand to remain tight.

Options Strategy To Capture Volatility

The threat to the Strait of Hormuz is the primary catalyst for this oil price risk. The U.S. Energy Information Administration has consistently noted that about 21% of global petroleum liquids consumption passes through this chokepoint. Any closure, however brief, would have an immediate and severe impact on global supply and prices. However, we must account for the Swiss franc’s role as a classic safe-haven asset. An escalating conflict could easily trigger a flight to safety that strengthens the CHF, creating a significant two-way risk for the USD/CHF pair. This tug-of-war between a hawkish Fed and geopolitical fear is a recipe for high volatility. Therefore, the most prudent derivative strategy is to buy volatility rather than betting on a specific direction. We believe establishing long straddles or strangles on USD/CHF is appropriate, as these positions profit from a large price move in either direction. This allows us to capitalize on the rising tension without being exposed to the binary outcome of the geopolitical standoff. Historically, such uncertainty causes a spike in implied volatility, making options more expensive. We saw this with the VIX index, which surged over 35 during the onset of the 2022 conflict. It is better for us to enter these volatility positions now before the market fully prices in the escalating war risk. Create your live VT Markets account and start trading now.

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