Swiss Franc Weakens As Fading US-Iran Deal Hopes Lift The US Dollar

• USD/CHF trades higher as fading optimism over a US-Iran deal supports the Greenback.

• Elevated Oil prices strengthen expectations that the Fed may need to keep interest rates higher for longer.

• Switzerland’s economy grew faster than expected in the first quarter, while manufacturing activity also improved.

USD/CHF edges higher on Monday as fading hopes for a near-term US-Iran peace deal underpin the US Dollar (USD) and keep the Swiss Franc (CHF) under pressure despite stronger-than-expected Swiss Gross Domestic Product (GDP) figures. At the time of writing, USD/CHF is trading around 0.7878, up nearly 0.88% on the day.

Iran’s semi-official Tasnim News Agency reported that Tehran has suspended message exchanges with Washington over Israel’s military operations in Lebanon. The report comes as Israel expands its military offensive against Hezbollah in southern Lebanon.

Meanwhile, the United States and Iran exchanged fresh attacks over the weekend. The latest developments helped the US Dollar rebound after it came under pressure last week amid reports that Washington and Tehran had reached a preliminary 60-day memorandum of understanding (MOU).

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.33 after recovering from Friday’s two-week low near 98.75.

Oil prices also staged a sharp rebound and continue to stoke inflation concerns. West Texas Intermediate (WTI) Crude Oil is up more than 5% on Monday.

Higher energy costs are fueling expectations that the Federal Reserve (Fed) may need to raise interest rates to tackle inflation, pushing US Treasury yields higher.

In contrast, the SNB is expected to keep policy unchanged as Swiss inflation remains within the central bank’s 0–2% target range. Switzerland’s annual CPI, due on Thursday, is forecast to rise to 0.8% in May from 0.6% in April.

On the data front, the S&P Global US Manufacturing Purchasing Managers Index (PMI) rose to 55.1 in May from 54.5 in April, while the ISM Manufacturing PMI climbed to 54.0, marking its highest reading since May 2022.

Switzerland’s economy expanded by 0.7% QoQ in Q1, beating forecasts of 0.5% after growing 0.2% in the previous quarter. The SVME Manufacturing PMI rose to 57.3 in May from 54.5 in April.