USD/CHF edged higher in Asian trade to about 0.7950 after small losses, with the US Dollar steady as markets stayed cautious over Iran’s unresolved nuclear programme. Neither Washington nor Tehran has published an official agreement text, and major shipping lines are delaying rerouting through the Strait of Hormuz pending clarity. Donald Trump said a memorandum of understanding had been signed to end the conflict and reopen the blockaded strait, while Iran’s Mehr news agency reported the draft envisages reopening within 30 days under Iranian arrangements.
Attention is also on the Federal Reserve, which is expected to hold its benchmark rate at 3.50% to 3.75% on Wednesday, with elevated energy prices feeding into US inflation concerns; traders are watching the press conference for guidance under new chair Kevin Warsh. Falling oil prices have eased inflation expectations, and money markets price no further Swiss National Bank rate changes for the rest of the year. Swiss Producer and Import Prices fell 1.8% year-on-year in May versus a 2.0% decline in April, while the index slipped 0.4% month-on-month against forecasts for a 0.4% rise, reversing April’s 0.8% increase.
Geopolitical Tensions and US Dollar Strength
We see the US Dollar holding its strength as traders remain cautious about the Iran nuclear deal. Full transparency on the Strait of Hormuz agreement is needed before risk appetite returns, keeping safe-haven flows directed towards the USD. This situation makes us lean bullish on USD/CHF in the immediate term.
Our focus is now on the Federal Reserve’s meeting tomorrow, as new Chair Kevin Warsh’s first press conference will be critical. While a rate hold is priced in, any hawkish signals about inflation could send the dollar higher. Historically, the first address by a new Fed Chair has increased implied volatility in major currency pairs by over 20%, suggesting options strategies could be well-suited.
Swiss Franc Pressures and Trading Strategies
On the other side, the Swiss Franc is weighed down by deflationary pressures, with recent producer prices falling 1.8% year-on-year. The Swiss National Bank is now widely seen as being on hold for the rest of 2026, removing a key pillar of support for the franc. This monetary policy divergence between the SNB and a potentially vigilant Fed strengthens our view.
Given this outlook, we believe buying USD/CHF call options with expirations in the next three to four weeks offers a favorable risk-reward profile. These instruments would capture upside from either a hawkish Fed surprise or a breakdown in the Iran negotiations. Similar geopolitical flare-ups in the Strait of Hormuz, such as the 2019 tanker incidents, caused oil price spikes of up to 15% within days, which would fuel US inflation concerns and support the dollar.
However, we must also prepare for a sharp reversal if the Hormuz deal is fully confirmed and relieves market tension. This binary risk makes volatility-based strategies, like a long straddle on USD/CHF ahead of the Fed announcement, an interesting alternative. Such a position would profit from a large price move in either direction, protecting against a sudden dovish pivot from the new Fed leadership.
