Swiss Franc strengthens as US Dollar struggles despite increased risk aversion

USD/CHF depreciates after four days of gains, trading around 0.7990 during the Asian hours on Thursday. However, the downside of the pair could be restrained as the US Dollar (USD) may regain its ground amid rising safe-haven demand due to ongoing Middle East conflict.

Israeli military says that the Home Front Command, the branch of the Israel Defense Forces (IDF) responsible for civil defense, issues an early warning after launches from Lebanon toward northern Israel.

Earlier, US Central Command (CENTCOM) confirmed that the US began airstrikes in Iran on Wednesday. Furthermore, President Donald Trump warned of severe military action if an interim peace deal is not finalized, accusing Tehran of stalling. Iranian officials, however, maintain they will not back down.

Following an incident where an American helicopter was shot down, the US launched "self-defense" strikes, triggering Iranian retaliatory attacks on US military facilities in Bahrain, Jordan, and Kuwait.

Adding to the crisis, the Islamic Revolutionary Guard Corps (IRGC) announced an immediate, total closure of the Strait of Hormuz to all commercial and oil vessels, warning that any transit attempts would be targeted.

May’s US CPI matched forecasts, rising to 4.2% YoY (up from 3.8% in April), while Core CPI ticked up to 2.9% YoY from 2.8%. Market attention now shifts to the upcoming release of the May Producer Price Index (PPI) and Initial Jobless Claims later today.

Swiss lawmakers are considering a new pitch to soften capital requirements on UBS, if implemented, could shave ‌billions of dollars off the burden the bank is facing under a draft law submitted by the government, sources told Reuters.

If implemented, the move would likely have a short-to-medium-term weakening effect on the Swiss Franc (CHF). While it sounds like a paradox, helping Switzerland's biggest bank making the currency drop, it boils down to central bank mechanics, market capital flows, and safe-haven dynamics.

Under the government's original draft law, UBS would have been forced to fully back its foreign subsidiaries with 100% Common Equity Tier 1 (CET1) capital, requiring the bank to raise an estimated $20 billion.