Insights 
VT 
The USD/CHF pair dropped to approximately 1.3690 during Friday’s Asian trading session. Concerns regarding US involvement in the Middle East conflict bolstered the Swiss Franc, causing a decline in the currency pair, despite it initially experiencing a three-day rise. This conflict has persisted for seven days, with the prospect of US intervention in the war between Israel and Iran creating uncertainty.
The Swiss National Bank (SNB) recently cut its interest rate by 25 basis points to zero, signalling a possible return to negative rates in the future. As a result, the Swiss Franc has strengthened against the US dollar. Meanwhile, the US Federal Reserve maintained its key borrowing rate but hinted at potential easing, influenced by US trade tensions.
Importance Of The Swiss Franc
The Swiss Franc is prized as a safe-haven currency due to Switzerland’s stable economy and neutral political stance. Decisions by the SNB significantly impact the Franc’s value, with interest rates playing a major role. Switzerland’s economic data, relationship with the Eurozone, and broader global market sentiment are critical in shaping the currency’s strength and performance. The Swiss Franc often moves in close alignment with the Euro, due to the tight economic ties with the Eurozone.
What’s taking place here is a sharp shift in foreign exchange sentiment driven less by domestic fundamentals and more by external force. The drop in the USD/CHF pair to around 1.3690 arrives not on a whim, but in direct response to geopolitical risk flaring up. The suggestion of more direct US involvement in conflict, particularly one touching Iran and Israel, has unnerved markets, and we’ve seen capital flow into more stable, less politically exposed assets. When investors face instability, they typically seek protection, and they often find it in currencies like the Franc. That sudden pull higher explains the move quite cleanly.
Jordan’s team at the Swiss National Bank certainly caught markets off guard with that 25 basis point cut down to zero. While expectations for easing had been foreshadowed earlier, the sharpness of the action and the tone that followed made it plain that the SNB is willing to tolerate or even drive further Franc strength — if that supports broader monetary conditions. Importantly, this comes at a time when inflation is somewhat contained, giving them time to move without risking rapid price growth at home. Still, it raises the spectre of returning to sub-zero policy rates, which if anything, acts as a signal that safe-haven demand, not rate differentials, is doing the heavy lifting right now.
On the other end, Powell and colleagues have been more static. Despite keeping rates unchanged, the subtle nods to possible easing down the road — possibly to counterbalance trading pressures shaped by tariffs and retaliation — leave the door ajar. That said, the Fed’s caution implies they see global risks mounting and prefer flexibility.
Risk Sentiment And The USD/CHF Pair
For traders focused on rate differentials, the edge has frayed. With the SNB cutting more assertively and the Fed hesitating, we must sit with the uncomfortable reality that interest rate divergence may not be the defining driver for this pair in the short term. Instead, we should look closely at international developments, particularly those beyond economics.
The Swiss Franc has again proven it doesn’t need policy support to gain traction. Investors seek reliability when wider narratives turn volatile — this is baked into the Franc’s reputation for decades. Its alignment with the Euro adds another layer of complexity, given its economic coupling with countries like Germany and France, though the Franc tends to move independently when fear is added to the equation.
We’ve seen that even with relative dovishness from the SNB, the Franc can appreciate if safe-haven demand intensifies. For now, the pair’s sensitivity may rest more heavily on the strength (or weakness) of USD rather than domestic performance. Real rates, CPI prints, and fixings could take the back seat if global risks persist, especially from geopolitical routes.
From our desks, it appears that short-term strategies need tailoring to reactiveness, not projections. Risk sentiment matters more than policy bias. The technical levels around 1.3700 have already been tested. If these hold, countertrend moves may be limited. But if geopolitical uncertainty escalates, there’s room for further CHF appreciation — regardless of SNB intentions. Keep eyes on event risk, particularly outside of macroeconomic calendars. Structured derivative positions must reduce reliance on interest rate projections alone.
