USD/CHF extended its rise for a second session, trading near 0.8110 in Asian hours on Tuesday, as the US Dollar drew support from safe-haven demand linked to ongoing US-Iran hostilities. The escalation has pushed oil prices higher, feeding renewed inflation concerns and increasing focus on the outlook for interest rates.
The CME FedWatch Tool showed markets pricing a 64.2% probability of a Federal Reserve rate hike in September, up from 57.8% the previous day, while officials observe the usual blackout period ahead of next week’s FOMC meeting, where the federal funds rate is widely expected to be held steady. US attacks on Iran continued for a tenth consecutive day, alongside retaliatory strikes from Tehran against neighbouring countries. On the Swiss side, SNB minutes kept a stable medium-term inflation view but pointed to rising caution, as geopolitical tensions lift short-term inflation risks; the SNB reiterated its readiness to intervene in FX markets to limit excessive franc strength and support price stability, with June Trade Balance data due later.
Geopolitical Tensions and USD/CHF Momentum
As we navigate the escalating conflict between the US and Iran, we advise derivative traders to position for continued upward pressure on the USD/CHF pair. The rising geopolitical risk has already pushed global oil prices up, with Brent crude testing the $85 to $90 range, which historically drives sudden spikes in US inflation. We recommend utilizing call options on USD/CHF to capitalize on this momentum while capping downside risk in case of sudden market reversals.
With the CME FedWatch Tool showing a rise in September rate hike expectations to 64.2%, short-term interest rate futures are pricing in a much tighter monetary policy than previously expected. Historically, during periods of heightened Middle East tensions, the US Dollar Index (DXY) tends to gain an average of 2% to 3% over a multi-week period as global capital seeks safety. We should look to buy USD call options with expirations after the upcoming September FOMC meeting to leverage this hawkish shift.
SNB Policy and Swiss Franc Dynamics
At the same time, we must closely monitor the Swiss National Bank (SNB), which has a history of aggressive foreign exchange interventions to prevent the franc from becoming too strong. In past currency interventions, such as those in early 2024, the SNB successfully capped CHF gains to protect Switzerland’s export-reliant economy. Given today’s release of the June Trade Balance data, which typically reflects a surplus of around 3 to 4 billion CHF, any signs of export weakness will likely trigger SNB action, making CHF short positions highly attractive.
