The Swiss Franc (CHF) extended its recovery against the US Dollar (USD) on Tuesday, driven by increased risk appetite and lower oil prices, which were influenced by hopes of renewed US-Iran negotiations. The USD/CHF pair dropped below 0.8200 during the European session, marking session lows and nearly 1% below last week's highs near 0.8270 [1]. This movement was attributed to news that Iran proposed reopening the Strait of Hormuz within seven days if the US lifts its blockade on Iranian ports, as reported by Kyodo News citing a senior Iranian government official [1].
The anticipation of eased tensions in the Middle East put downward pressure on oil prices, with Brent Oil falling to $94.20 earlier in the day, more than 10% below last week's highs and reaching its lowest levels in over two weeks [1]. This decline in oil prices further supported the CHF's rally, as investors shifted away from the safe-haven US Dollar and towards riskier assets [1].
In response to the rapid appreciation of the Swiss Franc, the Swiss National Bank (SNB) issued a warning on Tuesday, stating, "the Middle East Conflict means that we remain prepared to intervene in the foreign market should the need arise." The SNB did not provide additional details, but the intervention threat is aimed at curbing CHF strength, which could undermine efforts to boost inflation [1]. The Swiss central bank is scheduled to meet on Thursday and is widely expected to keep its benchmark interest rate at 0% [1].
SNB President Martin Schlegel noted earlier this month that inflationary pressures have increased somewhat, but price pressures remain within the stability range, making monetary tightening unlikely until well into 2027 [1]. Meanwhile, the US Dollar Index (DXY) has retreated from nearly two-month highs at 100.67 but remains above the key 100.00 level, reflecting moderate USD weakness amid improved risk sentiment and expectations for potential peace talks between US President Donald Trump and Iran's President Masoud Pezeshkian at the UN summit [1].
CONCLUSION
The Swiss Franc's rally, fueled by lower oil prices and optimism over US-Iran negotiations, prompted the SNB to warn of possible FX intervention to prevent excessive CHF appreciation. While the SNB is expected to maintain its current interest rate, the intervention threat highlights concerns about inflation and currency stability. Market sentiment remains cautiously optimistic, with risk appetite rising and the US Dollar showing moderate weakness.