USD/CHF stayed firm on Friday near 0.8150 after an intraday peak of 0.8170, the highest since 30 July, even as the US Dollar retreated from its post-data bounce and the pair headed for a third straight weekly rise. US inflation data kept rate expectations elevated: headline CPI rose 0.4% month on month in August, up from 0.1% in July, while the annual rate held at 3.4%. Core CPI increased 0.3% month on month versus a 0.2% forecast, and its annual pace eased to 2.4% from 2.5%. The Dollar Index (DXY) traded around 99 after briefly reaching 99.36, though softer US Treasury yields and lower Oil prices curbed further support, and CME FedWatch showed an 85% probability of a rate rise at the 15–16 September meeting, up from 67% earlier.
University of Michigan preliminary figures added a softer tone, with sentiment at 47.8 in September versus 51.7, and expectations at 45.8 versus 51.5; 1-year inflation expectations rose to 4.6% from 4.0%, while the 5-year measure edged up to 3.4% from 3.3%. The Swiss Franc underperformed, limiting downside in USD/CHF, and the SNB chairman said the exchange rate posed a challenge for the Swiss economy, keeping intervention risk in focus. With Switzerland’s low inflation consistent with the SNB’s zero-rate stance as other central banks lean tighter, widening yield gaps are supporting carry activity, while faster BoJ tightening expectations have lifted JPY and prompted the unwinding of yen-funded trades.
Trading Opportunities in USD/CHF Derivatives
We see a prime opportunity for derivative traders to short the Swiss Franc (CHF) using options and futures in the coming weeks. With the USD/CHF pair hitting multi-week highs near 0.8170, the momentum is clearly shifting in favor of the Greenback. This trend is backed by a resilient US economy and growing expectations of a Federal Reserve interest rate hike.
Recent data shows US core inflation remains stubborn, pushing market expectations for a rate hike next week to 85% according to the CME FedWatch Tool. Meanwhile, the US Dollar Index is holding strong around the 99 level despite minor pullbacks in treasury yields. We recommend traders buy short-term USD/CHF call options to leverage this rising interest rate divergence.
Capitalizing on Swiss National Bank Policy and Carry Trades
On the Swiss side, domestic inflation remains incredibly low, with recent consumer price index figures hovering near just 1.1%. SNB Chairman Martin Schlegel has openly warned that the strong Franc is a threat to their economy, signaling that the central bank is ready to intervene to weaken it. We can use this policy stance to write put options on the Swiss Franc, capitalizing on the central bank’s implicit cap on currency strength.
Furthermore, we are witnessing a massive shift in global carry trades as a stronger Japanese Yen forces traders to find new funding sources. With Switzerland maintaining its ultra-low interest rate policy, the Swiss Franc is quickly becoming the preferred currency to borrow. Derivative traders should exploit this by entering swap agreements that short the Franc while buying higher-yielding currencies.
