The dollar is living up to its reputation as «king», reaching parity with the Swiss franc for the first time in nearly two and a half years, coming amidst a highly volatile environment in the financial markets. Normally, the franc is in demand as a haven from the turmoil and tends to appreciate. 

Since January 2021, the US currency has risen nearly 14 percent against the franc following U.S.  interest rate hikes. With inflation over 8 percent in the U.S., the fear among investors is that the Fed will not be able to keep inflation under control even with accelerated rate hikes.

Overseas monetary policy is putting pressure on the European Central Bank (ECB) and the Swiss National Bank (SNB) to follow suit in tightening policy. The ECB has now poised for an interest rate move in July, with observers already talking about the SNB having to jump on aboard the tightening bandwagon before 2023.

Two-way Risk

For the time being, the upward pressure on the dollar will likely continue, causing headaches in the background in the hedging market. Mark Astley, co-head of currency specialist Millennium Global Investments, which is also active in Switzerland, warns Swiss franc hedgers have already suffered significant losses resulting from the dollar's rise. Moreover, the Swiss franc is overvalued even at current levels, while the cost of hedging is rising steeply to nearly 3 percent a year in light of the Federal Reserve's expected next interest rate hikes.

Consequently, the risk of losing out on franc positions in both directions is increasing, he said. «The franc is subject to significant two-way risk from now on,» he notes.