USD/CHF slid on Thursday as broad US Dollar selling followed a softer US Nonfarm Payrolls report. The pair was trading near 0.8029, the lowest since 18 June, down almost 0.80% on the session. The US Bureau of Labor Statistics said the economy added 57K jobs in June versus a 110K consensus, while May payrolls were revised to 129K from 172K. Even so, the unemployment rate dipped to 4.2% from 4.3%, and Average Hourly Earnings rose 0.3% MoM and 3.5% YoY, in line with expectations.
Rate pricing shifted after the data, with the CME FedWatch Tool showing the implied probability of a September Federal Reserve move falling to 51% from 63%. The Dollar also faced earlier pressure as the Japanese Yen rebounded on talk of possible official intervention. Against this backdrop, the US Dollar Index was around 100.70, down about 0.70%, as attention also turned to Switzerland where CPI was 0.0% MoM in June versus a 0.1% forecast and 0.2% previously; annual CPI eased to 0.5% from 0.6%, within the SNB’s 0%–2% range alongside a policy rate at 0%.
Shifting Federal Reserve Expectations And Signs Of US Labor Market Weakness
The weak jobs report fundamentally shifts our outlook on the Federal Reserve’s path for the rest of the summer. We see the sharp drop in payrolls from a revised 129K in May to just 57K in June as a clear sign of a cooling US labor market. This dramatically lowers the probability of another interest rate hike in the coming months.
This isn’t an isolated data point; we’ve seen this coming in other forward-looking indicators. Job openings, as measured by the JOLTS survey, already fell to 8.4 million in May, continuing a year-long decline from peaks over 10 million. The latest ISM Manufacturing PMI reading for June also came in at 46.3, marking the eighth consecutive month of contraction in the factory sector.
Outlook For USD/CHF And Trading Strategy
For these reasons, we are focusing on continued weakness in the US Dollar, particularly against the Swiss Franc. Swiss inflation data remains subdued, with the latest yearly CPI at just 0.5%. This gives the Swiss National Bank no reason to change its current policy, making the USD/CHF exchange rate a pure play on diverging US economic expectations.
We believe buying USD/CHF put options with expirations in late July and August is the most effective strategy right now. This allows us to profit from further downside in the pair while capping our potential losses. The implied volatility on these options has jumped since the report, but we expect the directional move downwards to be stronger.
Historically, a significant miss on the headline payrolls number like this isn’t just a one-day event; it often sets the trading tone for several weeks. The market’s attention will now shift entirely to the upcoming US Consumer Price Index (CPI) report on July 14. Another soft inflation reading would almost certainly cement a Fed pause and push USD/CHF toward the 0.7900 level.
