USD/CHF rose to about 0.7870 in Asian trading on Thursday after small losses the previous day. The move came as the US Dollar held firm amid geopolitical and policy factors.
Markets tracked US-Iran talks and renewed threats to the Strait of Hormuz shipping route. A Bloomberg report on Wednesday quoted President Donald Trump saying negotiations were in their final stages, increasing expectations the strait could reopen.
Geopolitical Risk And Market Reaction
Risk sentiment shifted after Trump said military action could resume within days if Iran rejects his terms. Iran’s President Masoud Pezeshkian wrote on X that Tehran would not surrender, calling attempts to force it through coercion “nothing more than an illusion”.
Federal Open Market Committee minutes from the April meeting, released on Wednesday, said most Federal Reserve officials saw a possible need to raise rates if inflation stays above the 2% target. The minutes also referred to inflation risks linked to the geopolitical conflict.
In Switzerland, preliminary data on Monday showed the economy grew 0.5% quarter-on-quarter in the first three months of the year, up from 0.2% in the prior period. Attention then turned to Swiss Industrial Production data for the first quarter of 2026 due later in the day.
The current tension surrounding the US-Iran negotiations creates a binary outcome for the market, making simple directional bets risky. We see a high probability of a sharp move in USD/CHF depending on whether a peace deal is signed or military action resumes. Derivative strategies that profit from this expected volatility, such as long straddles, should be considered over the next few weeks.
The focus is squarely on the Strait of Hormuz, a chokepoint through which about 20% of the world’s daily oil supply transits. Any escalation will likely cause a spike in oil prices, fueling inflation fears and a flight to the US Dollar as a safe haven. We should therefore be watching options on crude oil futures as a leading indicator of market fear.
Federal Reserve Policy And Hedging
The Fed’s hawkish stance from its April meeting minutes adds another layer of support for the dollar. With core inflation persisting above 3%, reminiscent of the stubborn inflation we battled through back in 2024, the central bank has little room to pivot. This makes buying downside protection on US equities, such as VIX calls or put options on major indices, a prudent hedge against a hawkish surprise.
Despite Switzerland’s strong economic performance, the Swiss Franc is losing its traditional safe-haven appeal to the US Dollar in this specific instance. This is a pattern we have seen before during periods of combined global military tension and aggressive Fed policy, such as in the first half of 2022. Therefore, we anticipate the franc will remain on the back foot as long as the Strait of Hormuz situation and Fed hawkishness dominate headlines.
