Insights 
VT 
The USD/CHF pair continues its downward trend, trading at 0.7930, marking a 0.27% decrease for the day. This four-day decline is due to the strengthening of the Swiss Franc as expectations for more monetary easing from the Swiss National Bank diminish.
Minutes from the Swiss National Bank’s meeting indicate deflation risks are no longer pressing, dismissing the prospect of negative interest rates. In the US, the Dollar weakens with an anticipated Federal Reserve rate cut of 25 basis points, potentially lowering the target to 3.75%-4.00%.
Rate Cut Expectations And Political Impact
The CME FedWatch tool suggests a 97% likelihood of a rate reduction in October, with a 95% probability of another cut in December. Political uncertainty in the US, alongside a government shutdown, impacts the currency, sparking debates within the Federal Reserve about further policy accommodation.
Despite these challenges, the US Dollar might gain some temporary support from improving risk sentiment. Optimism surrounds US-China trade talks, with a framework agreement on tariffs set for discussion between President Trump and President Xi Jinping, which could offer some stability to the Dollar’s position.
Current US Dollar exchange rates show it has performed better against the British Pound, yet weaker against several other major currencies, reflecting the broader market dynamics.
The fundamental driver here is the growing policy divergence between the US Federal Reserve and the Swiss National Bank. We see the Fed on a clear path to cut rates, while the SNB has signaled it is done easing for now, especially with Swiss inflation recently firming to 1.8% year-over-year. This setup favors continued Swiss Franc strength against the US Dollar, making USD/CHF put options or outright futures short positions compelling for the weeks ahead.
Implications Of Federal Reserve Policy And Market Dynamics
While the Fed’s 25-basis-point cut tomorrow is widely expected, the key event will be the forward guidance. Given the ongoing government shutdown and the latest ISM Manufacturing PMI for October 2025 dipping to 48.5, we anticipate a very dovish tone that could accelerate the dollar’s decline. The rise in currency volatility, with the CVIX index climbing from 6.5 to 7.8 this month, suggests option premiums are increasing, making it prudent to establish positions before the Fed’s announcement.
The interest rate differential that has supported the dollar for years is now rapidly shrinking. As traders, we are adjusting forward currency swaps to reflect the market pricing in another Fed cut in December, which would bring the target rate to 3.50%-3.75%. This continued erosion of the dollar’s yield advantage should keep sustained pressure on the currency into the end of the year.
We should, however, remain cautious about the upcoming meeting between the US and Chinese presidents. A surprisingly positive outcome on trade could trigger a short-term risk-on rally, temporarily boosting the dollar, similar to the market reactions we witnessed during the trade talks back in 2019. This presents a risk to short USD positions, which could be hedged with cheap, short-dated call options on USD/CHF.
