USD/CHF stayed above 0.7800 on Wednesday after rebounding from about 0.7760 last week. Higher US Treasury yields and a risk-off mood linked to Middle East tensions supported the US Dollar.
US CPI data on Tuesday reduced expectations for further Federal Reserve rate cuts. April CPI rose 3.8% year on year versus 3.7% expected, the highest since May 2023.
Inflation Surprise And Yield Support
Core CPI, which excludes food and energy, increased to 2.8% compared with 2.7% expected and above the Fed’s 2% target. Futures markets shifted towards a tighter policy outlook, lifting yields and supporting the Dollar.
Later, April Producer Prices Index data are due. Attention is also on a meeting between US President Donald Trump and China’s President Xi Jinping, with Iran, US-China trade, rare earths, and Taiwan on the agenda.
In the Middle East, conditions remained unchanged, with new developments seen as unlikely before the Trump–Xi talks. The Strait of Hormuz stayed closed, keeping oil near $100 and reducing risk appetite.
Looking back to this time in 2025, we remember the market grappling with high inflation and geopolitical fear. The concern then was the 3.8% CPI print and a hawkish Federal Reserve, which kept the dollar strong. Today, on May 13, 2026, the picture is different, with the latest CPI data released last week showing inflation has cooled to 2.9%, much closer to the Fed’s target.
Rates Outlook And Trading Implications
This shift has completely altered the interest rate outlook, which is crucial for derivative pricing. Whereas last year markets were bracing for more rate hikes, Fed funds futures now indicate a 75% probability of a rate cut by the end of the third quarter. This is a major reversal from the monetary tightening path we were on.
For traders looking at the USD/CHF pair, this changes everything from the environment in 2025 when the dollar was firmly bid. We should now consider strategies that benefit from a weaker dollar, as interest rate differentials are expected to narrow. Options traders could look at buying puts on the USD/CHF, anticipating a move lower from its current spot price near 0.8150.
The geopolitical risk premium that defined much of 2025 has also evaporated. We recall oil prices pushing $100 a barrel as the Strait of Hormuz was closed, but that situation was resolved late last year. Today, WTI crude is trading calmly around $78 a barrel, removing a major source of market anxiety.
Consequently, market volatility has compressed significantly from the elevated levels seen during the Middle East tensions in 2025. The VIX index is now hovering near a low of 13, compared to the sustained prints above 20 we saw during that period of uncertainty. This suggests that selling options premium might be more attractive now than buying it, but it also means that unexpected shocks could have a larger impact.
