Insights 
VT 
The USD/CHF pair has edged down to approximately 0.8045, with the Swiss Franc outperforming amidst anticipation of a new US-Swiss trade deal. This movement occurred during the late Asian trading session on Tuesday, as hopes for impending trade agreement developments rise.
A report indicates the US and Switzerland may announce this trade deal within two weeks, potentially reducing US tariffs on Swiss imports from 39% to 15%. Lower tariffs would favour Swiss products’ competitiveness globally. Concurrently, the US Senate has passed a government funding bill to the House of Representatives, which is anticipated to approve it by Wednesday.
The Fed Rate Cut Odds
The US Dollar Index is stable at around 99.60 as the market awaits possible Federal Reserve interest rate cuts. There is a 62.4% probability of the Fed reducing rates by 25 basis points to 3.50%-3.75% in December. This year, the Fed has already cut its key rates by 50 basis points due to job market concerns.
Tariffs are customs duties on imported goods, distinguishing them from taxes, which are paid at purchase. Economists are divided on tariffs’ benefits, with concerns about price increases and potential trade wars. US President Donald Trump has indicated using tariffs to bolster the US economy while aiming to lower personal income taxes.
We see the Swiss Franc strengthening on hopes of a trade deal with the US, pushing USD/CHF toward 0.8045. With a deal expected in two weeks to slash tariffs on Swiss goods, we should consider buying put options on USD/CHF. A strike price around 0.7950 with an early December expiry could capture the potential downside.
This trade view is supported by recent data showing Swiss exports to the US, particularly in pharmaceuticals and machinery, have already grown by 8% year-over-year despite the high tariffs. A reduction from 39% to 15% would significantly accelerate this trend, likely pushing the currency pair below the 0.8000 mark. We saw similar sharp currency moves on trade news back during the US-China negotiations in 2019.
Volatility and Trade Strategies
On the other side of the pair, the US Dollar is weak due to a cooling labor market. The last jobs report showed a gain of only 95,000, well below forecasts, solidifying bets on a Federal Reserve rate cut next month. This reinforces the case for a lower USD/CHF, as monetary policy between the US and Switzerland diverges.
The binary nature of this trade announcement means we should expect a spike in volatility. Implied volatility on USD/CHF options is already climbing, so acting sooner rather than later is wise. A confirmed deal could see the pair test the year-to-date lows around 0.7850.
However, we must also plan for the risk of the deal falling through. Should negotiations fail, we could see a violent snap-back rally in USD/CHF towards the 0.8200 resistance level. This is why using options is a prudent strategy, as it caps our potential losses to the premium paid.
Another factor to monitor is the Swiss National Bank (SNB), as Switzerland’s latest inflation reading came in at a modest 1.5%. A rapidly appreciating Franc could drag inflation down further, which might cause the SNB to express concern. For now, the trade deal narrative is the dominant driver for the next two weeks.
