USD/CHF falls as Iran declares Strait of Hormuz open
- USD/CHF slides as the Swiss Franc strengthens on Dollar weakness.
- Improved market sentiment weighs on the Greenback amid US-Iran deal hopes.
- Fed rate-cut expectations revive as Oil prices fall after Iran reopens the Strait of Hormuz.
The Swiss Franc (CHF) strengthens against the US Dollar (USD) on Friday, with USD/CHF on track for a second consecutive weekly decline as the Greenback remains under pressure amid improving market sentiment on hopes of a potential US-Iran deal. At the time of writing, the pair is trading around 0.7800, down 0.46% on the day and hovering near one-month lows.
Markets welcomed Iran’s decision to reopen the Strait of Hormuz. Iranian Foreign Minister Abbas Araghchi said in a statement on X that "In line with the ceasefire in Lebanon, the passage for all commercial vessels through the Strait of Hormuz is declared completely open for the remaining period of ceasefire, on the coordinated route as already announced by Ports and Maritime Organisation of the Islamic Rep. of Iran."
US President Donald Trump announced a 10-day ceasefire between Israel and Lebanon on Thursday, which had been a key sticking point for reaching a deal. However, the reopening of the Strait appears to be only partial. Trump said the US naval blockade will remain “in full force and effect” against Iran until a final agreement is fully completed.
Still, the announcement helped boost risk appetite, with West Texas Intermediate (WTI) sliding nearly 10% in the immediate aftermath. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, also fell to its lowest level since February 27 before trimming some of its losses. Despite the rebound, the index remains on track for a third consecutive weekly decline and is currently trading around 98.00 after bouncing from a low near 97.63.
The selloff in Oil helped ease inflation concerns, pushing US Treasury yields lower across the board as investors began pricing in Federal Reserve (Fed) rate cuts once again. CME FedWatch Tool data shows markets now leaning toward a rate cut by December, compared to the previous day when hold probabilities were around 70%.
San Francisco Fed President Mary Daly said rates could be left unchanged, but noted that policymakers would need to raise rates if inflation reaccelerates, while a quicker end to the conflict could open the door for rate cuts.
Looking ahead, a second round of US-Iran peace talks is expected to resume over the weekend, with markets increasingly optimistic that the conflict could be nearing an end as signs of diplomatic progress continue to emerge. However, unresolved differences over nuclear terms remain a major hurdle, keeping uncertainty in place despite improving sentiment.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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