The Swiss franc has risen over 5% against the US dollar following recent market shifts due to tariff announcements. This appreciation extends to other G10 currencies, with EUR/CHF trading nearly 3 cents lower than last week.
The Swiss National Bank (SNB) may face challenges due to this strength, as it could weaken inflation and pose risks of deflation. The SNB has expressed concerns about inflation pressures, particularly for Switzerland’s open economy.
Potential Countermeasures
If the franc continues to strengthen, the SNB might implement countermeasures, although the capacity for rate cuts is limited. More pronounced interventions may occur, contrasting with the previous year.
Given the franc’s rapid appreciation, particularly against the dollar and euro, we find ourselves re-evaluating the forward path for short-term interest rate differentials and currency volatility. The 5% rally isn’t nuanced—it’s abrupt, and historically, such movements tend to prompt either verbal or direct action from the Swiss National Bank (SNB). Jordan’s earlier concerns about inflationary pressures now seem overshadowed by the risk of imported deflation through a stronger currency.
This shift forces a rigid reassessment of implied volatilities across major currency pairs involving the franc. The compression seen in previous months may not hold. Already we’ve observed a substantial repricing in options markets, with increased demand for upside protection in USD/CHF. For strategies dependent on carry, particularly in low vol markets, scrutiny is warranted. The balance between rate spreads and currency drift is being tested.
Implications For Volatility
In a world where the SNB hinted at intervention last year but refrained from action, the space to delay is now narrower. With policy rates already among the lowest, any meaningful response may lean disproportionately on FX operations instead of further cuts. Should levels like 0.8800 in USD/CHF become sticky, we’d expect both spot and forwards to reflect heavier intervention risk, and with that comes opportunity—albeit paired with sharper downside when momentum swings.
On the optionality front, we’ve started seeing skew asymmetry return, especially along the one-to-three-month expiries. That’s a deviation from the relatively clean surface seen earlier in Q2. It suggests growing expectation for a binary shift—either stabilisation through direct action or a deeper dive into unwelcome franc strength.
We’re monitoring these flags: verbal commentary from SNB officials, deviations in sight deposits, and liquidity pressures around franc-denominated funding instruments. The moment one of those tilts, books reliant on static franc assumptions will need adjustment quickly. It doesn’t mean scrap the strategy; it means shorten horizon, tighten stops, and keep hedging reflexes sharp.
We also advise tracking cross-asset correlations closely. If the euro remains under pressure through its own local constraints, and risk-off continues to drive demand for the franc, any interventions by the SNB may coincide with volatility across equity and bond markets, indirectly amplifying the effect. In such a case, delta-hedging and gamma scalping strategies will not only perform better—they’ll provide insight on market sentiment in real time.
Lastly, pricing around forward points has already adjusted, but the curve isn’t fully reflecting fresh policy margin constraints. That’s where we’re spending more time—derivatives that can extract value from asymmetry in central bank flexibility, not just directional bias. For us, that’s where volatility becomes not just a risk, but the clearest path to return.
