Insights 
VT 
The Dollar’s Limited Gains
The Greenback’s potential gains are limited, as a 25-basis-point interest rate cut by the Fed next week is expected. In Switzerland, the Franc remains pressured despite an improved trade surplus, as deflationary trends persist, challenging the Swiss National Bank.
A heat map shows the US Dollar’s performance against major currencies, with the Dollar showing the most strength against the British Pound. The USD showed a -0.17% change against the Euro and a -0.31% change against the Japanese Yen, among others.
USD/CHF is in a consolidation phase as traders remain cautious ahead of central bank decisions and inflation data in the US and Switzerland.
We are seeing a familiar cautiousness in the USD/CHF pair, which is currently holding around the 0.9015 level. This echoes past periods of uncertainty where traders awaited major central bank decisions. The market’s focus remains on inflation data and the diverging paths of the Federal Reserve and the Swiss National Bank.
Geopolitical Impact on Currency
Unlike the rate-cutting cycle discussed, our current challenge is a stubbornly hawkish Federal Reserve. September’s Consumer Price Index data showed inflation persisting at 3.1%, well above the Fed’s target. With the US labor market remaining tight, showing an unemployment rate of just 3.9%, any derivatives play must account for the Fed maintaining higher rates for longer.
On the other side, the Swiss National Bank is no longer fighting the deep deflationary pressures seen in the late 2010s. Swiss inflation has stabilized, recently clocking in at 1.5%, which is low but not negative. This gives the SNB more flexibility, but the franc remains sensitive to shifts in global risk sentiment, much like it was years ago.
The current geopolitical landscape is creating the same kind of risk-off demand for the franc that we saw during the US-China trade tensions of the Trump administration. Any escalation in global conflicts reduces appetite for risk, strengthening the CHF and putting downward pressure on the USD/CHF pair. We remember how quickly the pair could move on a single headline back then, and that lesson is relevant today.
Considering the Fed’s firm stance against the SNB’s more neutral position, option traders might consider strategies that benefit from volatility. Buying straddles or strangles could capture a significant breakout ahead of next month’s US jobs report or the SNB’s quarterly assessment. This allows a position to profit whether the pair moves sharply up or down, hedging against the uncertainty of which central bank will flinch first.
