USD/CHF fell about 0.15% to near 0.7775 in European trading on Thursday, staying below 0.7800 as the US Dollar weakened. The move came as reports pointed to growing prospects of a US-Iran peace deal.
The US Dollar Index (DXY) was down 0.1% at around 97.90, showing a softer Dollar against six major currencies. The decline followed increased focus on diplomacy between the US and Iran.
Al-Hadath, a sister channel to Al Arabiya, said on X that intense communications between the US and Iran are continuing to gradually reopen the Strait of Hormuz. The Strait is linked to almost 20% of global energy supply, and the post said a breakthrough could come within hours for ships stranded there.
As the risk backdrop improved, demand for the Dollar as a safe-haven eased and pressure on inflation expectations also softened. This reduced support for expectations of tighter US Federal Reserve policy.
The Swiss Franc showed mixed movement against other major currencies while markets looked for new signals on the Swiss National Bank’s policy outlook. Attention now turns to US Nonfarm Payrolls data for April, due on Friday.
We are looking back at the situation in 2025 when hopes for a US-Iran deal were pressuring the USD/CHF pair below 0.7800. The US Dollar Index was weakening to around 97.90, signaling broad-based selling of the greenback. This environment creates specific opportunities for derivative traders in the coming weeks.
A potential reopening of the Strait of Hormuz directly impacts energy markets and inflation expectations. Historically, geopolitical de-escalation in the Middle East has led to lower oil prices; we saw West Texas Intermediate (WTI) crude futures drop over 8% in the month following the initial 2015 JCPOA framework announcement. Traders should consider buying puts on oil ETFs or shorting futures contracts to hedge against or speculate on a drop in energy costs.
The easing of geopolitical tensions reduces the US Dollar’s safe-haven appeal and lowers inflation fears, which in turn cools expectations for Federal Reserve rate hikes. This was reflected in the interest rate futures market, where the probability of a Fed rate cut within six months, as priced by SOFR futures, jumped from 20% to over 50% during similar de-escalation events in the past. To position for this, traders could look at buying SOFR or Fed Funds futures contracts, which appreciate in value as rate hike expectations diminish.
For the USD/CHF pair specifically, the path of least resistance appears to be downward. We saw options data from last year show one-month risk reversals for USD/CHF moving to -0.6%, indicating a strong bias and higher premium for puts over calls. Traders should consider buying put options on USD/CHF to profit from further downside while defining their maximum risk.
The upcoming Nonfarm Payrolls report is a major risk event that could either accelerate or reverse this trend. Ahead of last year’s pivotal data releases, one-week implied volatility for USD/CHF typically jumped by 2-3 percentage points, reaching levels around 8.5%. This suggests that purchasing a straddle or strangle could be a viable strategy to profit from a significant price move, regardless of the direction after the data is released.
