- The USD/CHF increased by nearly 0.50% on Monday, breaking a two-day decline for the US dollar.
- Swiss CPI was projected to rise by 0.1%, following a 0.2% increase in July, but monthly inflation remained at 0.0%.
- The Swiss Manufacturing PMI dropped to 48.8, marking its fifth consecutive month of contraction and was somewhat unexpected.
The Swiss Franc (CHF) showed weakness against the US Dollar (USD) on Monday, putting an end to a two-day upturn as the greenback found stability. Weaker than anticipated labor market figures prompted significant selling of the US dollar, allowing USD/CHF to pull back from its peak over the past weeks.
Even though Swiss inflation data was stronger than forecasted, with a 0.2% rise in advance of the July Consumer Price Index (CPI) estimate of 0.1%, monthly inflation remained flat at 0.0%. At the time of reporting, the USD/CHF pair was around 0.8078 during US trading hours, reflecting an increase of nearly 0.50% that day.
Alongside bearish sentiment affecting the franc, the Swiss manufacturing sector showed further signs of deterioration. The SVME Purchase Manager Index (PMI) for July fell to 48.8, whereas the forecast had anticipated it would hold at 49.9, down from 49.6 in June. This marked five months of continuous contraction, indicating a decline in industrial activity amid sluggish global demand and escalating trade uncertainties. The disappointing PMI figure overshadowed the positive inflation surprise, raising concerns about the health of the Swiss economy, particularly in light of US tariff pressures.
Recently, US President Donald Trump signed an executive order that could significantly change US trade policy by imposing new “mutual” tariffs on over sixty countries. This has particularly impacted Switzerland, where exports to the US are confronting sudden tariffs of 39%, which is higher than the previously suggested 31%.
In reaction, the Swiss government held a special meeting on Monday, reaffirming its dedication to resolving the trade issue through discussions. Officials stated they were “committed to making a more appealing proposal to the United States” and are prepared to keep talks going beyond the August 7 deadline. Notably, Bern clarified there are no plans to introduce countermeasures, emphasizing that the Swiss trade surplus with the US isn’t due to unfair practices but rather structural economic factors and past tariff agreements.
Regarding monetary policy, the recent CPI numbers have given the Swiss National Bank (SNB) some leeway, but inflation remains well below targets, aligning with the current policy view. With manufacturing activity contracting and negative impacts from US tariffs, the SNB is likely to maintain its accommodative stance in the near term. While a shift back to negative interest rates isn’t immediate, policymakers have indicated such a move remains a possibility if inflation pressures increase. On the US side, the disappointing non-farm payroll (NFP) report for July has reignited expectations for policy easing by the Federal Reserve, with current market pricing suggesting an 88% chance of a 25 basis point rate cut in September, according to the CME FedWatch tool.
