Trade Tensions and Currency Trends

The US Dollar is struggling due to rising trade tensions with China and expectations that the Federal Reserve will lower interest rates. The Swiss Franc is gaining strength as a safe-haven currency, even though local economic data is weak. The USD/CHF has dropped for four days, hitting a one-month low, then bouncing back slightly after comments from President Trump about the trade dispute. The US Dollar Index has fallen to a one-week low, with the market anticipating two more rate cuts from the Fed before the year ends. This comes after the Fed’s Beige Book report suggested declining consumer spending and a weakening job market. The ongoing government shutdown in the US adds more uncertainty and puts additional pressure on the Dollar, especially after the Senate rejected a funding bill for the tenth time. Trade relations between the US and China are deteriorating further. President Trump has threatened to raise tariffs on Chinese imports to 100% after China’s restrictions on rare earth exports. Despite these threats, he still seeks a fair deal with China. Meanwhile, safe-haven demand helps the Swiss Franc strengthen against major currencies, even as domestic indicators show falling producer prices and modest GDP growth projections. As of October 17, 2025, the US Dollar remains weak while the Swiss Franc is gaining ground as a safe-haven asset. This trend is driven by expectations that the Federal Reserve will continue to ease its monetary policy amid rising geopolitical tensions. Traders in derivatives should prepare for further declines in currency pairs like USD/CHF. The Federal Reserve recently cut rates by 25 basis points, leading markets to expect more cuts, especially after this week’s Non-Farm Payrolls report fell short of expectations with only 95,000 jobs added. The CME FedWatch Tool indicates over a 70% chance of another rate cut before the year ends. As a result, the US Dollar Index (DXY) has broken below the key 102.00 support level, signaling broader weaknesses for the Dollar.

Safe Haven Demand for the Franc

This situation mirrors the US-China trade war from the late 2010s. During that time, political uncertainty and tariff threats pushed investment into safe-haven assets like the Franc. This suggests that current tensions over technology export controls could have a similar ongoing effect on currency markets. Demand for the Swiss Franc is rising, despite the Swiss National Bank’s cautious approach and data showing that Swiss manufacturing PMI has contracted for a third month in a row. This shows that, during global uncertainty, the Franc’s role as a capital refuge often outweighs the economic fundamentals of Switzerland. Currently, the Franc is the best-performing G10 currency this month, gaining over 1.5% against the US Dollar. In this environment, traders might consider buying put options on USD/CHF to take advantage of or protect against further declines. A move toward multi-year lows around the 0.8300 level, seen in late 2023, seems increasingly likely. Creating a bear put spread could be a cost-effective way to bet on further declines toward that target. Market volatility is also a key factor, with the VIX index rising to over 22 this past month, a level not seen since banking sector concerns in 2023. This increased volatility raises the cost of buying options but also creates opportunities for those who sell premium. Strategies like selling out-of-the-money call options on USD/CHF could generate income while fitting a bearish outlook. Create your live VT Markets account and start trading now.

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