Swiss Franc Weakens Amid Easing Inflation and US Dollar Strength

The Swiss Franc (CHF) weakened against the US Dollar (USD) as July inflation cooled to its lowest level in four months. The Consumer Price Index (CPI) slowed down to 0.4% in July, a decrease from 0.5% in June. This slowdown is seen as a relief for the Swiss National Bank (SNB), which had expected a modest near-term inflation pickup after holding policy rates at 0%. Strategists at Brown Brothers Harriman note that this development gives the SNB 'plenty of room to keep rates at 0.00% for some time,' an ongoing drag on the CHF.

The pair USD/CHF has moved little in two days, trading around 0.8100 during Asian hours on Tuesday. This stability is attributed to the ongoing diplomatic uncertainty surrounding US President Donald Trump's decision to call off a major military strike against Iran and his subsequent 'last chance' offer for discussions with Iranian leaders.

Market participants are recalibrating their monetary policy expectations following the Fed's decision to hold interest rates steady in July. The CME FedWatch tool currently prices in a 65% probability of a 25-basis-point rate hike at the Federal Reserve's upcoming September meeting, further supporting the USD and putting pressure on the CHF.