USD/CHF rose for a sixth straight session, touching a seven-month high of 0.8107 in Asian trading on Wednesday, as the US dollar firmed amid the Middle East situation. Later in the day, attention turns to Switzerland’s ZEW Survey – Expectations for June and the Q2 SNB Quarterly Bulletin. US President Donald Trump said Iran had agreed to open its facilities to nuclear inspections, while Iranian Foreign Minister Abbas Araghchi said substantive nuclear negotiations have not begun.
Iran’s chief negotiator said the Strait of Hormuz would not return to its pre-war status and would remain under Iranian oversight, while the US hosted talks between Israel and Lebanon aimed at securing a ceasefire with Iran-backed Hezbollah. In data, the US S&P Global Composite PMI flash for June rose to 52.2 from 51.5 in May, and manufacturing output increased to 55.7 from 55.1, above the 54.8 forecast, while Services PMI edged up to 51.3 from 50.7, beating 51.0. CME FedWatch shows a near 86.1% probability of a December Fed hike, up from 61% before last week’s FOMC meeting. The SNB held its policy rate at 0% for a fourth meeting in June, raised its inflation forecast, and reiterated willingness to intervene in FX markets.
Policy Divergence and Geopolitical Risks Support Bullish USD/CHF Outlook
Given the widening policy gap between the Federal Reserve and the Swiss National Bank, we see a clear opportunity in the USD/CHF pair. The Fed’s hawkish stance, with markets pricing in an 86.1% chance of a rate hike, contrasts sharply with the SNB holding its rate at zero. We should position for continued US dollar strength against the Swiss franc by considering buying USD/CHF call options expiring in the next one to two months.
The ongoing tension in the Middle East provides a strong tailwind for the US dollar as a safe-haven asset. Any escalation involving the Strait of Hormuz, through which about 21% of global petroleum liquids pass, will likely trigger further flights to safety. This geopolitical uncertainty can increase market volatility, making options an effective tool to capitalize on sharp upward moves while defining our risk.
Economic Resilience and SNB Commitment Favor Further USD Strength
Strong US economic data solidifies the case for a more aggressive Federal Reserve, directly supporting our bullish dollar view. The recent S&P Global Composite PMI reading of 52.2 is well into expansionary territory, historically signaling a healthy economy that can withstand higher interest rates. This resilience gives the Fed a green light to continue its policy, further strengthening the dollar’s appeal over other currencies.
The Swiss National Bank’s explicit readiness to intervene against franc strength places a ceiling on any potential CHF recovery. Historically, the SNB has engaged in massive foreign currency purchases, with reserves peaking at over 1 trillion CHF in 2021, showing their commitment to weakening the currency when needed. This official resistance makes shorting the franc an attractive strategy for us.
We believe setting up bullish positions through one-touch or standard call options on the USD/CHF is the most prudent action. Targeting strike prices above the current 0.8100 level, such as 0.8250 for late July or August expirations, would allow us to profit from the expected upward trend. This approach allows us to participate in the upside while limiting our potential loss to the premium paid for the options.
