Swiss Franc weakens following soft inflation, manufacturing data

USD/CHF extends its gains for the second successive day, trading around 0.8090 during the European hours on Monday. The pair remains on a stronger footing as the Swiss Franc (CHF) holds onto losses following the release of soft domestic inflation and manufacturing data.

In July, Swiss consumer prices rose by just 0.4% year-on-year, marking the slowest pace of growth since March and easing from a 0.5% gain in June. Annual core inflation, which excludes volatile items like unprocessed food and energy, held steady at 0.3%. On a monthly basis, consumer prices slipped by 0.1%, the first contraction in six months after a flat reading in June.

Franc outlook softens as Nomura sees Swiss inflation undershooting SNB

Strategists at Nomura highlight that “car fuel prices contributed to the slowdown in Swiss inflation in July,” reinforcing the recent disinflationary trend. Against this backdrop, they add that “we expect inflation in Q3 to print below the SNB’s forecast,” suggesting a softer fundamental environment for the Swiss Franc.

Compounding the Franc's weakness, Switzerland’s SVME Manufacturing PMI fell to 53.2 in July from 54.3 in June, missing market expectations of 55.0 and recording its lowest level since February.

However, the upside for the USD/CHF pair may be constrained by broad-based weakness in the US Dollar (USD) following official confirmation of joint foreign exchange interventions by Japan and the United States. Japanese authorities confirmed coordinated yen-buying operations, with Bank of Japan data revealing expenditures reaching up to $58.97 billion. Tokyo signaled a readiness to intervene further if necessary, emphasizing ongoing, close communication with US counterparts.

Moreover, the Greenback faces challenges amid easing market risk aversion, driven by potential diplomatic progress between Washington and Tehran. Market sentiment brightened after US President Donald Trump announced a pause on planned military strikes. In a post on Truth Social, President Trump noted that Iran and regional partners had requested time to negotiate a deal aimed at fully reopening the Strait of Hormuz and addressing concerns over Iran's nuclear program.

US data in focus as markets weigh Fed reaction and credibility

Strategists at BNY Mellon argue that the coming week will "test whether markets can keep looking through policy uncertainty while demanding firmer evidence from data and earnings," with U.S. nonfarm payrolls singled out as "the main event." They note that "the Fed’s reaction function is harder to read," leaving "its credibility tied to incoming data" as investors assess how labor-market prints and corporate results shape expectations for the policy path.