USD/CHF rose on Tuesday as uncertainty over efforts to end the US-Iran war kept risk sentiment weak and supported demand for the US Dollar. The Swiss Franc did not strengthen much, despite its safe-haven role, while the Swiss National Bank said it is ready to act against excessive currency moves.
USD/CHF traded near 0.7895, up 0.50%. The US Dollar Index was around 98.68, up 0.20%.
Risk Sentiment And Strait Of Hormuz
US-Iran talks showed little progress, and Donald Trump said Iran told the United States it is “in a state of collapse” and wants the Strait of Hormuz reopened. Iran proposed reopening the strait and ending the war first, with nuclear talks later, but US officials reportedly remained sceptical.
With disruption in the Strait of Hormuz, oil prices stayed elevated, adding to inflation risks. Markets expect the Federal Reserve to delay rate cuts, supporting US Treasury yields and the Dollar.
The Fed decision is due on Wednesday, with rates expected to stay in the 3.50%–3.75% range. Markets will watch Fed Chair Jerome Powell’s remarks for guidance.
ADP Employment Change 4-week average eased to 39.25K from 40.25K. The Conference Board Consumer Confidence Index rose to 92.8 versus 89 expected, from 91.8 (revised to 92.2).
From Geopolitics To Policy Divergence
We recall that around this time in 2025, geopolitical tensions surrounding the US-Iran stalemate kept the US Dollar heavily supported, with the DXY index trading near 98.70. That specific conflict has since cooled into a fragile truce, but the underlying economic dynamics it created have now evolved. The focus has decisively shifted from geopolitical risk to central bank policy divergence.
The Federal Reserve, which held its policy rate steady in the 3.50%-3.75% range back in April 2025, subsequently delivered two cuts as energy-led inflation subsided. However, recent data now points to a significant reversal, as the latest core PCE reading for March 2026 came in at an annualized 3.7%. This persistent inflation has forced the market to price out any further rate cuts this year, fueling a significant rally in the Greenback.
Consequently, the USD/CHF pair, which traded below 0.7900 during the 2025 tensions, is now showing renewed upward momentum and is currently trading near 0.8120. The Swiss National Bank’s previous warnings about an overvalued franc have become moot as the policy gap with a newly hawkish Fed widens. This creates a clear upward trajectory for the currency pair in the coming weeks.
For derivative traders, this environment suggests positioning for continued US Dollar strength against the Swiss Franc. Buying call options on USD/CHF with strike prices around 0.8200 and 0.8250 for June and July expirations seems prudent to capitalize on this trend. Implied volatility has ticked up to 7.8% from a low of 6.1% earlier this year, signaling market anticipation of larger moves.
We are also seeing a significant steepening in the US Treasury yield curve, with the 2-year note now yielding 4.85%, a sharp increase from 4.30% just two months ago. This widening interest rate differential between the US and Switzerland is the primary engine for the dollar’s strength. This supports strategies that benefit from a stronger dollar, as capital flows seek higher yields in the US.
