USD/CHF weakens as US data disappoints, Swiss GDP slows on tariff drag

• USD/CHF edges lower toward 0.8050 as soft US data keeps the Greenback on the defensive.
• US Retail Sales rose 0.5% MoM and 3.9% YoY in July, slowing from 0.9% and 4.4% respectively, pointing to a deceleration in household spending.
• Switzerland's GDP grew 0.1% in Q2, slowing sharply from 0.8% in Q1, as US tariffs weighed on external demand.

The Swiss Franc (CHF) gains ground against the US Dollar (USD) on Friday, with the USD/CHF pair easing toward the key 0.8050 level during the American session, as the latest round of US economic data reveals growing cracks in domestic demand, keeping the Greenback under pressure.

The latest US data release painted a mixed but increasingly fragile picture of the economy. Retail Sales rose 0.5% in July, in line with expectations, but marked a slowdown from June's upwardly revised 0.9% increase. On an annual basis, Retail Sales rose 3.9% in July, slowing from 4.4% in June. The Retail Sales Control Group, a key input for estimating personal consumption in GDP, increased by just 0.5% in July, undershooting the 0.8% forecast.

From a macro standpoint, the disconnect between disinflation signals and persistent core pressures remains unresolved. Earlier this week, the US Consumer Price Index (CPI) came in soft at the headline level, but core CPI edged slightly higher, underscoring sticky services inflation. Thursday's hot Producer Price Index (PPI) print -- the largest monthly gain since mid-2022 -- further complicated the inflation picture.

Adding to the complexity, the preliminary University of Michigan Consumer Sentiment survey for August showed a drop in the headline index to 58.6, below expectations of 62.0 and the lowest since May. While the Expectations Index edged up to 57.2, consumer inflation expectations surged. The 1-year inflation outlook rose sharply to 4.9% from 4.5%, and the 5-year outlook jumped to 3.9% from 3.4% a concerning development for the Federal Reserve (Fed), which closely monitors long-term expectations as a gauge of credibility and price stability.

This week's data reinforces the case for a cautious Fed. Slowing consumer demand and softening sentiment support the argument for policy easing, but persistent core inflation and the sharp rebound in producer prices suggest limited room to maneuver. A 25 basis point cut in September remains the most likely outcome, but expectations for a sustained or aggressive easing cycle have diminished. The outlook beyond September is increasingly uncertain and will remain highly data-dependent.

On the Swiss side, data published Friday showed that Switzerland's Gross Domestic Product (GDP) grew by just 0.1% in the second quarter, sharply down from 0.8% in Q1, according to the State Secretariat for Economic Affairs (SECO). The slowdown reflects weakening external demand, likely exacerbated by the impact of recently imposed US tariffs on Swiss exports. While domestic activity remained relatively stable, trade friction weighed on overall growth. Still, the Franc held firm, supported by safe-haven flows and broad-based US Dollar weakness.