USD/CHF, trading around 0.7940, declines as expectations for Swiss National Bank (SNB) policy easing decrease. Minutes from the SNB’s September meeting show the bank has ruled out returning to negative interest rates and remains accommodative with its policies.

The US Dollar weakens as traders anticipate a 25-basis-point rate cut by the US Federal Reserve (Fed), bringing the rate to 3.75-4.00%. The CME FedWatch Tool suggests a 97% probability of a Fed cut in October and a 95% chance for another in December.

Fed Faces Debates Over Rate Cuts

The Fed faces debates amid a US government shutdown, weighing rate cuts against inflation above the 2% target. Optimism over US-China trade negotiations provides potential support for the US Dollar, with agreements potentially being finalised.

The Swiss Franc is driven by market sentiment, Swiss economic health, and the SNB’s actions. It is seen as a safe haven due to Switzerland’s stable economy and neutrality. The Franc’s value is influenced by Swiss macroeconomic data and Eurozone monetary policy, given Switzerland’s economic ties with the Eurozone. Higher Swiss interest rates generally strengthen the CHF, while lower rates weaken it.

The current market dynamics in USD/CHF are showing a familiar pattern of policy divergence, reinforcing the view that the pair will face downward pressure. The Swiss National Bank appears committed to its firm stance, especially after recent data showed Swiss inflation remaining stubbornly at 2.1% for the third quarter of 2025. We recall periods, like the one described in late 2019, where the SNB’s dismissal of easing measures provided significant strength to the franc.

On the other side of the pair, we see the US Federal Reserve facing increasing pressure to soften its policy. With the last two Non-Farm Payroll reports for August and September 2025 both missing expectations and Q3 GDP growth being revised down to 1.5%, the case for holding rates steady is weakening. The CME FedWatch Tool now shows a greater than 70% probability of a rate cut in the first quarter of 2026, a sharp increase from just a month ago.

Path for Derivative Strategies

This divergence suggests a clear path for derivative strategies favoring a lower USD/CHF exchange rate in the coming weeks. We believe buying December-expiry put options with a strike price around 0.8700 offers a well-defined risk-to-reward profile for this outlook. This allows for participation in the potential downside while capping the maximum loss at the premium paid for the option.

For traders seeking a more conservative approach or wanting to lower their upfront costs, establishing a bear put spread could be more appropriate. This involves buying a higher-strike put and simultaneously selling a lower-strike put, which reduces the initial cash outlay. This strategy would capitalize on a moderate decline in the pair toward the 0.8650 support level.

However, we must remain aware of potential tail risks that could disrupt this view. Any sudden escalation in global geopolitical tensions could trigger a broad flight to safety, which historically benefits the US Dollar more than any other currency, including the franc. A sharp spike in the VIX volatility index above 25 would be a key signal that safe-haven flows are shifting back towards the dollar, potentially causing a sharp reversal in USD/CHF.

Create your live VT Markets account and start trading now.