USD/CHF climbs as Swiss data beats fail to offset trade worries, US Dollar firms

• USD/CHF rises nearly 0.50% on Monday, snapping a two-day losing streak for the US Dollar.
• Swiss CPI surprised to the upside, rising 0.2% YoY in July vs. 0.1% expected; monthly inflation flat at 0.0%.
• Swiss manufacturing PMI dropped to 48.8, missing forecasts and marking the fifth consecutive contraction.

The Swiss Franc (CHF) edges lower against the US Dollar (USD) on Monday, snapping a two-day winning streak as the Greenback stabilizes, supported by a rebound in Treasury yields following last week's soft jobs data. The softer-than-expected labor market data triggered a broad-based USD sell-off, helping USD/CHF retreat from multi-week highs.

Monday's decline came despite stronger-than-expected Swiss inflation data, with the Consumer Price Index (CPI) rising 0.2% YoY in July, ahead of the 0.1% forecast, while monthly inflation held flat at 0.0%, beating expectations of a -0.2% decline. At the time of writing, the USD/CHF pair is hovering near 0.8078 during American trading hours, up nearly 0.50% on the day.

Adding to the bearish pressure on the Franc, Switzerland's manufacturing sector showed further signs of weakness. The SVME Purchasing Managers' Index (PMI) for July dropped to 48.8, missing expectations of 49.9 and down from 49.6 in June. This marked the fifth consecutive month of contraction, reflecting subdued industrial activity amid weak global demand and heightened trade uncertainty. The downbeat PMI print overshadowed the upside surprise in inflation, reinforcing concerns over the health of the Swiss economy, particularly as the country faces mounting pressure from US tariffs.

On Thursday, US President Donald Trump signed an executive order that significantly reshapes US trade policy by introducing new "reciprocal" tariffs on more than five dozen countries. Switzerland is among the hardest hit, with exports to the US now facing a steep 39% tariff, well above the previously threatened 31%.

In response, the Swiss government convened a special session on Monday, reiterating its commitment to resolving the dispute through dialogue. Officials stated they are "determined to make a more attractive offer to the US," and are prepared to "continue talks beyond the August 7 deadline." Importantly, Bern clarified that it does not plan to impose any countermeasures and stressed that Switzerland's trade surplus with the US is not a result of unfair practices, citing structural economic factors and previous tariff concessions.

On the monetary policy front, the latest CPI data offered a brief reprieve for the Swiss National Bank (SNB), but inflation remains well below target, keeping the policy outlook firmly dovish. With manufacturing activity contracting and downside risks from U.S. tariffs mounting, the SNB is expected to maintain its accommodative stance in the near term. While a return to negative interest rates isn't imminent, policymakers have signaled they remain on the table if price pressures falter further. On the US side, the weak July Nonfarm Payrolls (NFP) report has revived expectations of policy easing by the Federal Reserve (Fed). According to the CME FedWatch Tool, markets are now pricing in an 88% probability of a 25 basis point rate cut in September.