Insights 
VT 
The US Dollar has dropped over 1% this week, reaching one-month lows at 0.7872. Concerns about a US-China trade war, a potential US government shutdown, and remarks from the Federal Reserve are impacting its value. The Swiss Franc has strengthened against the Dollar in a risk-off market, dropping the pair below 0.7900 to near 0.7870, marking a 1.15% weekly decline.
Impact Of Trade Tensions
Trade tensions, the US government’s prolonged shutdown, and the Federal Reserve’s potential policy easing affect the Greenback. Fed officials indicated possible changes after a Fed report warned of decreased consumer spending and a stalled labour market, with businesses facing uncertainty and rising costs from trade tariffs.
Despite poor Swiss economic data, risk aversion boosts the Swiss Franc. Swiss producer prices fell for the fifth month in September, and forecasts predict a 1.3% GDP growth in 2025, affected by a slowdown in the year’s latter half.
In financial contexts, “risk-on” refers to investor confidence driving riskier asset purchases, whereas “risk-off” indicates safer assets are favoured. In a “risk-off” environment, Bonds, Gold, and safe-haven currencies like the US Dollar, Japanese Yen, and Swiss Franc prosper. The Dollar benefits as a global reserve currency during crises, with the Yen and Franc also seeing increased demand for perceived safety.
With the US Dollar falling to one-month lows around 0.7872 against the Swiss Franc, we see clear signs of a risk-off market. This sentiment is being driven by fears of a prolonged US government shutdown and escalating trade tensions with China. Derivative traders should view this as a signal that safe-haven assets will likely outperform in the near term.
The momentum in the USD/CHF pair is strongly bearish, having broken the key 0.7900 level. We believe traders should consider buying put options on the pair to capitalize on further downside potential. Shorting USD/CHF futures contracts is another direct way to position for a continued slide, especially as dovish Fed commentary gains traction.
The Impact Of The US Government Shutdown
The current US government shutdown, now entering its second week, is creating significant uncertainty, reminding us of the market impact of the 35-day shutdown in 2018-2019. This is worsened by recent trade news, where China has threatened new tariffs on US industrial goods. These combined factors are solidifying expectations that the Federal Reserve will be forced to cut interest rates sooner rather than later.
Market data reflects this expectation, with the CME FedWatch Tool now showing an 88% probability of a 25-basis-point rate cut at the November FOMC meeting. This is a dramatic shift from just three weeks ago when the probability was below 50%. This growing certainty of monetary easing will likely continue to weigh heavily on the dollar.
This flight to safety is not limited to the Swiss Franc; we are also seeing significant strength in the Japanese Yen. The USD/JPY has fallen sharply in recent days, and similar strategies like buying USD/JPY puts or going long yen futures could prove effective. This broad-based dollar weakness against other safe havens underscores the depth of the market’s anxiety.
Volatility is another key area to watch, with the VIX index climbing above 24 this week. This suggests traders could profit from strategies that are long volatility, such as buying straddles on major stock indices. In this environment, gold has also surged, breaking past $2,450 per ounce, making call options on gold an attractive proposition.
It is crucial to remember that the Swiss Franc’s strength is occurring despite weak domestic data, including a fifth straight month of contracting producer prices. This indicates the move is almost entirely driven by global risk aversion, not Swiss economic health. If market sentiment were to suddenly improve, the Franc could be vulnerable to a sharp pullback.
