The USD/CHF currency pair has concluded its four-day upward trend, now trading around 0.8140 during Asian hours on Friday. This decline in the pair comes as the US dollar faces pressure following a disappointing inflation report.
Market focus has shifted toward the upcoming US retail sales data for July, set to be released later. In terms of inflation, the Bureau of Labor Statistics recently noted that wholesale prices for goods and services remained steady in July, contrasting with an anticipated 0.2% uptick after June’s revised 0.1% drop. The core producer price index (PPI), which omits the volatile food and energy sectors, increased by 0.2%, slightly below the expected 0.3%. Year-on-year, the overall PPI rose by 4.7% in July, while the core PPI saw a 4.2% increase over the same timeframe.
These indicators, signaling a slowdown in inflation, have influenced expectations regarding Federal Reserve policy. The CME FedWatch tool now indicates a 34.8% probability of a US interest rate hike at the September meeting, down from 40% right after the PPI figures were announced.
On the other hand, inflationary pressures are also easing in Switzerland. Swiss inflation decreased to 0.4% in July from 0.5%, marking the lowest rate in four months. This suggests limited transmission of rising energy prices associated with geopolitical issues. This lower figure stands in contrast to what the Swiss National Bank (SNB) had anticipated, expecting moderate inflation increases shortly after its decision to maintain interest rates at 0%.
Swiss banks appear to be relatively unaffected, leading to speculation that the SNB may regard further interest rate cuts as a contingency rather than a baseline scenario, likely keeping borrowing costs steady for the year. While many economists predict the SNB’s first rate hike will occur in early 2028, currency markets are pricing in potential hikes as soon as March 2027.
The franc’s outlook remains weak amid SNB’s inflation measures
OCBC analysts point out that “near-term inflation risks remain limited,” although the recent weakness of the Swiss franc may eventually lead to higher import prices. They believe these effects are “unlikely to kick in for at least two more quarters” and emphasize that domestic price pressures “remain subdued and below the Swiss National Bank’s target range of 0-2%,” which may allow the SNB to be more patient regarding policy and tolerate a further decline in the franc.
