US Economic Concerns

The USD/CHF pair is stabilizing around 0.7960 during the Asian session as traders wait for the Swiss Consumer Price Index (CPI) data for September. This data will be released at 06:30 GMT, and economists expect an annual growth rate of 0.3%, up from 0.2% in August. Monthly price pressures are predicted to drop by 0.2%, faster than the previous rate of 0.1%. Swiss National Bank Chairman Martin Schlegel noted that inflation might rise in the next few quarters. Since Switzerland is the second-largest exporter of pharmaceuticals to the US, US tariffs pose challenges for the Swiss economy. Higher inflation numbers could ease worries about negative interest rates, while lower data may increase those concerns. In the US, a government shutdown has raised worries about the economic outlook. The GDP could decrease by $15 billion each week due to this closure. This situation is putting pressure on the US Dollar, and the Dollar Index has struggled, hitting a weekly low around 97.45. Adding to this stress are the Federal Reserve’s dovish expectations and a weakening job market. The September ADP Employment Change data shows 32,000 layoffs. The CPI, an important inflation measure, provides insight into consumer trends in Switzerland. With the USD/CHF pair around 0.7960, we are in a waiting phase before the Swiss inflation data is released. The main focus is whether the Consumer Price Index matches or exceeds the 0.3% annual growth expectation. A strong number might push the pair lower, while weaker data could lead to a rise.

US Tariffs on Swiss Pharmaceuticals

With the Swiss National Bank concerned about rising price pressures, a higher-than-expected inflation figure would increase speculation against further rate cuts, strengthening the franc. We may want to consider using put options to position for a drop in USD/CHF if the inflation trend is confirmed. This is especially relevant, given the SNB’s history of making significant policy changes based on inflation, like the unexpected de-pegging from the euro in 2015. On the other side, the US Dollar faces significant challenges due to the ongoing government shutdown. We’ve seen similar scenarios before; the 35-day shutdown from 2018 to 2019 cost the US economy about $11 billion total. The current estimate is that the shutdown will impact the economy by $15 billion each week, suggesting a more severe economic drag, which will likely keep downward pressure on the dollar for weeks. This dollar weakness is worsened by a declining job market, increasing the chances of a Federal Reserve rate cut. The recent ADP report showing a loss of 32,000 jobs in the private sector is concerning, especially since large job losses often lead to dovish actions from the Fed. This strengthens our belief that any temporary strength in the US dollar will not last. However, we shouldn’t overlook the new 100% US tariffs on Swiss pharmaceuticals, an essential export sector for Switzerland. This creates a strong counterforce that could weaken the Swiss franc, regardless of domestic inflation data. A recent report from the Swiss Economic Institute (KOF) showed that the pharma sector makes up over 35% of Swiss exports, making it highly vulnerable to such targeted trade actions. The opposing forces of a weak US dollar and a potential tariff-impacted Swiss franc suggest high volatility in the coming weeks. Therefore, a smart strategy might be to use options to bet on a significant price swing rather than a specific direction. Buying a volatility-focused structure like a strangle could be profitable if the government shutdown worsens or the tariff impacts are severe, prompting a breakout from the current tight range. Create your live VT Markets account and start trading now.

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