The Swiss Franc traded near-flat against the US Dollar around 0.7870 in Asian trading on Friday. USD/CHF consolidated as markets awaited confirmation of a longer peace deal between the US and Iran after claims of a “final draft” brokered by Pakistan.
The US Dollar Index (DXY) was slightly higher at about 99.27. Risk appetite improved on Thursday after Iran’s ILNA said a draft had been reached and a deal could be announced within hours.
Market Focus And Geopolitical Developments
Reuters reported Iran was not prepared to give up its enriched uranium and wanted recognition of its authority over the Strait of Hormuz. US data showed the preliminary S&P Global Composite PMI for May was steady at 51.7, with stronger manufacturing offsetting slower services growth.
In Switzerland, focus stayed on whether the Swiss National Bank may move away from a dovish stance as global inflation pressures rise alongside higher oil prices. The US Dollar is the most traded currency, making up over 88% of global FX turnover, or about $6.6 trillion a day in 2022.
The Federal Reserve targets inflation at 2% and adjusts interest rates to manage inflation and employment. It can also use quantitative easing, which tends to weaken the Dollar, or quantitative tightening, which tends to support it.
Looking back, we remember this time last year, in May 2025, when the USD/CHF pair was trading flat around 0.7870. There was a lot of focus on a potential peace deal between the US and Iran, which created a sense of temporary calm in the markets. At that time, the US Dollar Index was holding steady just below 100.
Outlook For Policy Divergence
That broad peace deal never fully stabilized, and continued tensions in the Strait of Hormuz have kept energy prices unpredictable. The failure to secure a lasting agreement has meant that geopolitical risk remains a significant factor influencing currency markets. We see this reflected in oil prices, which have averaged over $85 a barrel for the Brent crude benchmark so far in 2026.
As a result, the USD/CHF is now trading significantly higher, near 0.9150, reflecting a much stronger dollar. This strength is supported by persistent US inflation, which the latest CPI data shows is still hovering at 2.8%, well above the Federal Reserve’s target. This makes the Fed hesitant to lower interest rates from their current levels.
Meanwhile, the Swiss National Bank (SNB) did follow through on the speculation from 2025 and exited its dovish policy to fight inflation. However, with Swiss inflation now having fallen to 1.4%, the SNB is signaling it may be one of the first major central banks to begin cutting rates. This growing policy divergence between a cautious Fed and a dovish-leaning SNB is a primary driver of the franc’s weakness against the dollar.
For derivative traders, this environment suggests betting on continued dollar strength against the franc. The clear policy difference supports strategies like buying USD/CHF call options with strike prices around 0.9200 or 0.9250 for the coming months. This allows traders to profit from a continued upward move in the pair.
Given the elevated uncertainty, implied volatility in the pair has risen, making options more expensive. Therefore, using spreads, such as a bull call spread, could be a more cost-effective strategy for traders. This approach would involve buying a call option and simultaneously selling another call option at a higher strike price to reduce the initial premium paid.
