USD/CHF is on course for its first weekly decline in five weeks after weaker US Nonfarm Payrolls data on Thursday pressured the US Dollar, though the pair steadied on Friday as markets reassessed the Federal Reserve’s rate path. It was last virtually unchanged near 0.8034, having dipped to 0.8010, while the US Dollar Index was around 100.84 after an intraday low of 100.61. The limited follow-through in USD selling suggests the payrolls miss has shifted timing more than direction for Fed tightening, with policy still expected to remain restrictive as inflation runs above the 2% target following recent acceleration linked to higher oil prices.
Rate pricing adjusted modestly: the CME FedWatch Tool puts the chance of a September move at 53%, down from 63% pre-release, while December odds remain at 76%. Focus is turning to the June CPI report later this month, as energy-driven inflation risks ease with oil retracing most gains sparked by the US–Iran war. In Switzerland, low inflation underpins expectations the Swiss National Bank will hold rates at 0%, while retaining a readiness to intervene to curb excessive CHF strength; next week’s agenda centres on US ISM Services PMI and the Fed minutes, with no Swiss releases due.
—Temporary Setback for the Dollar: Pullback, Not Reversal
Given the recent drop in USD/CHF after the weaker-than-expected US jobs report, we see this not as a trend reversal but as a temporary dip. The US Dollar’s inability to sell off further suggests the market still anticipates a hawkish Federal Reserve. This pullback presents a potential entry point for traders betting on renewed dollar strength in the coming weeks.
We believe the market overreacted to the latest Nonfarm Payrolls data, which showed the U.S. economy added only 155,000 jobs in June, missing expectations of 210,000. While the CME FedWatch Tool shows the probability of a July rate hike has dropped to just 25%, the chances for a hike by the November meeting remain over 70%. This indicates traders see this weak data as delaying, not canceling, the Fed’s next move.
The decisive event for the dollar will be the U.S. Consumer Price Index (CPI) report due in mid-July. With core inflation remaining persistent around 3.1% for the past quarter, any upside surprise in the upcoming report will likely cause rate hike odds to surge, propelling the USD higher. We should therefore be positioned for a potential spike in volatility around that release.
—Policy Divergence and Trading Strategies for USD/CHF
On the other side of the pair, the Swiss National Bank (SNB) remains committed to its dovish policy. The latest Swiss inflation data for June came in at a manageable 1.4%, giving the central bank no reason to consider rate hikes. This growing policy divergence between a hawkish Fed and a neutral SNB creates a strong underlying support for the USD/CHF pair.
For derivative traders, this environment favors strategies that benefit from a limited downside and potential upside in USD/CHF. We are looking at buying short-dated call options to capitalize on a rebound following the U.S. CPI data. Selling out-of-the-money puts with a strike price below key support levels could also be an effective strategy to collect premium, given the SNB’s implicit desire to prevent excessive franc strength.
