USD/CHF is on track to record its first weekly decline in five weeks after the US Dollar came under pressure following weaker-than-expected US Nonfarm Payrolls (NFP) data released on Thursday. The disappointing employment figures briefly weakened the Greenback by reinforcing expectations that the Federal Reserve could take a more cautious approach toward additional policy tightening. However, the pair recovered on Friday as the US Dollar stabilized, with investors reassessing the broader outlook for US interest rates.

At the time of writing, USD/CHF is trading near 0.8034, little changed on the day after dipping to an intraday low of 0.8010. Meanwhile, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, rebounded to around 100.84 after falling to 100.61 earlier in the session. The modest recovery suggests that traders remain reluctant to aggressively sell the US Dollar despite the softer labor market report.

Market participants believe the weaker NFP data has reduced, rather than eliminated, the likelihood of further Federal Reserve rate increases. Persistent inflationary pressures, which remain above the Fed’s 2% target despite recent moderation, continue to support a restrictive monetary policy stance. Although higher energy prices had previously fueled inflation concerns, the recent pullback in Oil prices has eased some of those risks.

According to CME FedWatch estimates, the probability of a September rate hike has declined to 53% from 63% before the employment report. However, expectations for a December increase remain relatively firm at around 76%, indicating that markets still anticipate at least one additional rate hike if inflation remains stubborn.

Attention now shifts to the June Consumer Price Index (CPI) report, which is expected to provide fresh guidance on the Fed’s policy direction. A stronger inflation reading could revive expectations for further tightening, while softer data may increase confidence that interest rates have peaked.

On the Swiss side, inflation remains subdued, supporting expectations that the Swiss National Bank will leave its benchmark interest rate unchanged at 0%. Policymakers have also reiterated their willingness to intervene in currency markets if excessive Swiss Franc strength threatens economic stability.

Looking ahead, traders will monitor next week’s US ISM Services PMI and the minutes from the Federal Reserve’s latest policy meeting for additional clues on the interest rate outlook. In contrast, Switzerland’s economic calendar remains quiet, leaving USD-driven developments as the primary influence on USD/CHF.

Trade Idea: Buy USD/CHF above 0.8050 with targets at 0.8100 and 0.8140. Place a stop-loss below 0.8010, as renewed Dollar weakness could limit upside momentum.