The Swiss franc strengthened against the US dollar as demand for the dollar’s safe-haven role eased after a US-Iran peace agreement. USD/CHF was around 0.7923, down 0.60% on the day. Risk tone improved with the four-month conflict seen nearing an end and a formal signing ceremony expected on Friday. Under a 60-day memorandum of understanding, the US will lift its blockade of Iranian ports and Iran will reopen the Strait of Hormuz to commercial shipping, while talks continue on the nuclear programme, sanctions relief and the release of frozen assets.
The US dollar and oil opened with a bearish gap, and the Dollar Index (DXY) traded near 99.46 around one-week lows. Traders also reassessed the Federal Reserve’s policy outlook as lower oil prices reduced expectations of interest-rate increases later this year, with a decision due on Wednesday and rates widely expected to be kept unchanged. US inflation rose to 4.2% in May, more than double the 2% target, while Swiss inflation stayed near the lower end of the Swiss National Bank’s 0%–2% range. The SNB is expected to hold rates at 0% on Thursday; a Reuters poll found all 28 economists foresee no change this year, while four predict one or two quarter-point rises in 2027.
Pressure On The US Dollar Amid Policy Divergence
With the US-Iran peace agreement removing a major source of global uncertainty, we expect the US Dollar to remain under pressure in the coming weeks. The policy divergence between a potentially less hawkish Fed and a neutral Swiss National Bank strongly favors the Franc. We are seeing USD/CHF test lows around 0.7920, a level not seen since the sharp drop in late 2023.
The immediate collapse in oil prices is a key factor, with WTI crude futures recently falling over 10% to near $82 a barrel after trading above $95 during the conflict. This sudden drop in energy costs will likely dampen future inflation prints, giving the Federal Reserve less reason to maintain a hawkish stance. We anticipate this will weigh on the dollar and support risk-on assets.
Market Opportunities And Volatility Outlook
In this environment, we are looking at options that profit from a continued decline in the USD/CHF pair. Buying August put options with a strike price around 0.7900 could offer a good risk-to-reward profile as the pair trends lower. The upcoming SNB meeting on Thursday is expected to be a non-event, removing any immediate upside risk for the Franc.
This de-escalation has also crushed market volatility, with the VIX index falling from wartime highs above 25 to below 15 in just a few sessions. We believe volatility will continue to compress as geopolitical risk is priced out of the market. This makes selling premium through strategies like iron condors on major stock indexes an attractive proposition for the weeks ahead.
The main event to watch will be the Fed’s statement this Wednesday, which will set the tone for the summer. While a rate hold is certain, we are positioning for a statement that acknowledges the disinflationary impact of falling oil prices. Any language signaling that the Fed is less concerned about future inflation would accelerate the dollar’s decline.
