Swiss Franc strengthens on inflation surprise and broad US Dollar weakness

• USD/CHF falls as broad US Dollar weakness and hotter Swiss inflation support the Franc.
• US Initial Jobless Claims rise slightly above expectations, while Fed Governor Waller strikes a dovish tone.
• Traders await the US ISM Services PMI and Friday’s Nonfarm Payrolls report.

USD/CHF comes under selling pressure on Thursday as a sharp rally in the Japanese Yen (JPY) weighs broadly on the US Dollar (USD), while the Swiss Franc (CHF) draws support from stronger-than-expected inflation and growth data. At the time of writing, the pair trades around 0.8070, down 0.75% on the day, after reaching 0.8156 on Wednesday, its highest level since July 30.

The latest US labour-market data adds to the selling pressure on the Greenback. Initial Jobless Claims increased to 206K in the week ending August 29, slightly above the market forecast of 205K and the previous reading of 204K, pointing to a modest rise in layoffs ahead of Friday’s Nonfarm Payrolls (NFP) report.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 99.26, near a one-week low, after reaching 99.86 on Wednesday, its highest level since August 14. Later in American trading hours, attention turns to the August ISM Services Purchasing Managers Index (PMI), which is expected to rise slightly to 54.3 from 54.1 in July.

Dovish comments from Federal Reserve (Fed) Governor Christopher Waller keep traders cautious over the possibility of a September rate hike. Waller said he is “finally seeing some signs of disinflation in recent data” and that the “rate decision in September hinges on August inflation.” He added that he would support keeping interest rates unchanged if the August data confirm recent progress.

According to the CME FedWatch Tool, traders are pricing in around a 60% chance that the US central bank will raise interest rates at its September 15-16 meeting.

Brown Brothers Harriman’s Elias Haddad highlights that the Swiss Franc is “today’s second-best-performing major currency, behind JPY”. He notes that “Swiss inflation ran hot in August,” with “headline CPI [rising] more than expected to 0.8% y/y (consensus: 0.5% y/y) vs. 0.4% in July.” BBH points out that “headline inflation is the highest since September 2024 and above the SNB’s Q3 forecast of 0.6% y/y,” while “core CPI inflation also surprised to the upside at 0.4% y/y (consensus: 0.3%), following four straight 0.3% readings.”

Despite the supportive data surprise, Haddad cautions that “CHF is the worst-performing G10 currency so far this quarter,” stressing that the prevailing rate backdrop “is an ongoing headwind for CHF.” BBH observes that “the swaps curve continues to fully price in a first 25bps hike to 0.25% in June 2027,” underscoring that “the SNB has plenty of room to keep rates at 0.00% for some time, given that inflation remains well within the bank’s price stability mandate of less than 2% per annum.”