Insights 
VT 
The US Dollar is currently positioned just above the 0.8000 level against the Swiss Franc. This situation has arisen amidst concerns about potential trade escalations between the US and China, with past events having already caused a close to 1% drop in dollar value.
US President Trump has attempted to ease recent tensions through social media, although risk appetite remains low following the announcement of increased tariffs on Chinese imports. The adjustment in tariffs sparked recollections of previous trade conflicts, impacting market confidence.
China’s Response
China has responded to these trade measures with its own set of restrictions, hinting at future retaliatory actions. The Swiss Franc’s movements this week will depend largely on pending Producer and Import Prices data, which may alleviate concerns about deflationary trends in Switzerland.
Trade wars generally involve heightened protectionism, leading to economic conflicts and increased import costs. The US-China trade war started in 2018, intensifying with tariffs from both sides until the Phase One trade deal in 2020. However, further tensions have resurfaced since Trump’s return to the US presidency, with promises of additional tariffs that could affect global economic stability.
We are seeing the US Dollar struggle to hold the 0.8000 line against the Swiss Franc, a direct result of the trade standoff. The market is pricing in significant uncertainty, which means volatility is likely to stay elevated. For derivative traders, this suggests that long volatility strategies, like buying straddles on USD/CHF, could be beneficial regardless of the ultimate direction.
Data and Market Response
Recent data supports this cautious view, as the Chicago Board Options Exchange’s VIX index has surged over 35% in the last two weeks to trade above 24. Furthermore, the latest US ISM Manufacturing PMI reading for September fell to 48.7, signaling a contraction that complicates the Federal Reserve’s policy path. This economic weakness makes further US Dollar strength a difficult proposition.
We’ve seen this pattern play out before during the initial 2018-2020 trade conflict. During that time, every major tariff escalation led to sharp, temporary flights to safe-haven assets like the Swiss Franc and Japanese Yen. Traders should therefore consider buying call options on these currencies to hedge against or speculate on another round of risk aversion.
Beyond currencies, this environment is highly supportive for assets like gold, which often strengthens when the US Dollar is under pressure from its own government’s policies. We have already seen Gold futures climb past $2,150 an ounce, a level not seen since the banking anxieties of early 2024. This trend suggests that call options on gold could provide upside exposure as geopolitical tensions simmer.
However, it’s important to remember the Swiss Franc has its own challenges, which could cap its strength. Last week’s Swiss Producer Price Index unexpectedly fell by 0.2%, renewing deflationary concerns and keeping pressure on the Swiss National Bank. This means that while the Franc is a safe haven, its gains against other currencies like the Euro might be more pronounced than against the dollar if the SNB signals a more dovish stance.
