Swiss franc falls as US tariffs overshadow inflation uptick

The Swiss franc weakened to around 0.81 per US dollar as concerns over newly announced US tariffs overshadowed a modest uptick in Swiss inflation.

On August 1, the Trump administration unveiled a 39% tariff on Swiss exports—higher than the 31% rate announced in April—with the measures set to take effect on August 7. The steep hike, which targets key Swiss industries such as machinery, pharmaceuticals, and precision instruments, has raised fears of retaliatory action and growing pressure on Switzerland’s export-driven economy.

If sustained, the tariffs are expected to reinforce disinflationary pressures in Switzerland, particularly as firms face higher costs and thinner margins abroad.

Meanwhile, inflation rose slightly to 0.2% year-on-year in July, above expectations of 0.1% but still hovering near zero. Core inflation remained subdued, and price gains were primarily driven by seasonal factors such as holiday-related travel and food. Analysts noted that underlying price momentum remains weak, in part due to sluggish wage growth and declining import prices linked to the strong franc and weak global demand.

The subdued price growth, combined with mounting external risks, suggests the Swiss National Bank (SNB) may still move to lower interest rates further into negative territory, especially if the euro weakens further or the European Central Bank eases policy. The SNB has reiterated its commitment to intervening in currency markets if necessary to contain excessive franc appreciation.

Adding to concerns, the Swiss manufacturing PMI fell to 48.8 in July from 49.6 in June, signaling a deeper contraction in the sector. The decline was led by weaker orders and output, with exporters citing increased uncertainty and tightening global conditions. Forward-looking indicators suggest more headwinds ahead, particularly if the trade dispute with the US escalates or if growth in key European partners continues to slow.