The Swiss Franc strengthens as the US Dollar weakens following news of a ceasefire agreement between Israel and Lebanon.

USD/CHF moves lower as the US Dollar comes under pressure amid improving market sentiment following the renewal of the Israel-Lebanon ceasefire on Wednesday. However, the Greenback could find support from robust May employment figures, which have reinforced expectations that the Federal Reserve may keep tightening monetary policy. Meanwhile, Swiss National Bank President Martin Schlegel recently stated that the SNB remains prepared to intervene if tensions in the Middle East drive excessive appreciation of the Swiss Franc.

USD/CHF snapped its three-session advance and traded near 0.7910 during Thursday’s Asian session as the US Dollar weakened amid improving risk sentiment. Market appetite for risk increased after Israel and Lebanon agreed to renew their ceasefire on Wednesday, although the deal remains conditional on a complete halt to hostilities by the Iran-backed Hezbollah group. The agreement followed US-mediated discussions in Washington.

Despite the absence of formal diplomatic ties between the two countries, both sides also agreed to create several pilot security zones where the Lebanese armed forces would assume sole authority, excluding all non-state actors from those areas.

However, losses in USD/CHF may remain limited as the US Dollar could regain support from growing expectations that the Federal Reserve will tighten monetary policy further this year. Strong US labor market indicators, including May’s ADP private employment report and JOLTS job openings data, reinforced confidence in the resilience of the economy and encouraged speculation that interest rates may stay elevated for longer.

At the same time, the ongoing conflict involving Iran has continued to disrupt energy markets, pushing oil prices higher and intensifying inflation concerns. Reflecting this shift in sentiment, the CME FedWatch Tool now indicates roughly a 42% chance of a Fed rate hike in December.

Meanwhile, Martin Schlegel, Chairman of the Swiss National Bank, stated that the Swiss Franc’s real overvaluation is considerably less pronounced than its nominal overvaluation. He also emphasized that the SNB stands ready to increase its foreign-exchange market interventions if heightened Middle East tensions trigger excessive safe-haven demand for the Swiss Franc.