US Economic Concerns
The USD/CHF pair is stabilising around 0.7960 during the Asian session as markets await the Swiss Consumer Price Index (CPI) data for September. The data will be released at 06:30 GMT, with economists predicting an annual growth rate of 0.3%, up from 0.2% in August. Monthly price pressures are expected to decrease by 0.2%, a faster pace compared to the previous 0.1%.
Swiss National Bank Chairman Martin Schlegel remarked that inflation could rise in the coming quarters. The Swiss economy, being the second-largest exporter of pharmaceuticals to the US, faces challenges due to US tariffs. Swiss inflation indications would assuage fears about negative interest rates, while softer data might increase these.
In the US, a government shutdown has sparked concerns over its economic outlook. The GDP could shrink by $15 billion weekly due to the closure. This situation has been pressuring the US Dollar, with the Dollar Index struggling after reaching a weekly low near 97.45. Adding to this are Federal Reserve dovish bets and the weakening job market, evidenced by the September ADP Employment Change data showing 32K layoffs. The CPI, an essential measure of inflation, is crucial for insights into purchasing trends in Switzerland.
With the USD/CHF pair hovering around 0.7960, we are in a holding pattern ahead of the Swiss inflation data. The immediate focus is whether the Consumer Price Index meets or beats the 0.3% annual growth expectation. A strong number will likely send the pair lower, while a miss could see a spike higher.
US Tariffs on Swiss Pharmaceuticals
Given the Swiss National Bank’s concern about accelerating price pressures, a higher-than-expected inflation reading would fuel bets against further rate cuts, strengthening the franc. We should consider positioning for a drop in USD/CHF through put options if the data confirms this inflationary trend. This is especially true as the SNB has a history, like the sudden de-pegging from the euro back in 2015, of making significant policy shifts based on their inflation mandate.
On the other side of the pair, the US Dollar is facing significant headwinds from the ongoing government shutdown. We have seen this play before; the 35-day shutdown in 2018-2019 was estimated to have cost the US economy around $11 billion in total. The current White House estimate of a $15 billion weekly impact suggests a more severe economic drag, which should keep downward pressure on the dollar for weeks.
This weakness in the dollar is compounded by a deteriorating US job market, making a Federal Reserve rate cut more likely. The recent ADP report showing a loss of 32,000 private sector jobs is alarming, as significant negative prints have historically preceded dovish policy shifts from the Fed. This reinforces our view that any strength in the US dollar will likely be temporary.
However, we cannot ignore the new 100% US tariffs on Swiss pharmaceuticals, a critical export sector for Switzerland. This creates a powerful counterforce that could weaken the Swiss franc, regardless of domestic inflation data. A recent report from the Swiss Economic Institute (KOF) noted that the pharma sector accounts for over 35% of Swiss exports, making it highly vulnerable to such targeted trade actions.
The conflicting forces of a weak US dollar and a potentially tariff-damaged Swiss franc suggest high volatility in the coming weeks. Therefore, a viable strategy would be to use options to bet on a large price swing rather than a specific direction. Buying a volatility-focused structure like a strangle could be profitable if either the US shutdown deepens or the tariff impact proves severe, causing a breakout from the current tight range.
