Steady After the Slide

August 04, 2025

Elias Haddad

USD, Treasury yields, and stocks stabilize after Friday’s tumble. Quiet day on the data front. Check-out our Drivers for the Week for a review of last week’s market action and a look at what markets are facing this week.

President Trump plans to announce a new Fed governor and new BLS head this week.

Swiss inflation unexpectedly quickens in July. SNB still has scope to lower the policy rate below zero.

USD and Treasury yields are steady just above Friday’s lows while US equity futures point to a modest rebound. Any USD recovery looks fragile in our view, and the broader downtrend should reassert itself:

First, US policymaking credibility is increasingly under threat. Fed Governor Adriana Kugler’s departure on August 8, gives President Donald Trump an opportunity to appoint a replacement aligned with his monetary policy agenda. Meanwhile, the dismissal of the Bureau of Labor Statistics (BLS) head by President Trump immediately after the poor July jobs data risks damaging perception of US economic data integrity.

Second, the US economy is showing cracks while the full hit from tariffs has yet to come. The average effective US tariff rate is estimated at 18.3% as of August 1, the highest since 1934. That’s up from 2.4% in January, 7% in May and roughly 16% in June and July. The higher tariffs are projected to lower real GDP growth by -0.5 percentage points in both 2025 and 2026 and increase consumer prices by 1.8% in the short-run.

SWITZERLAND

Swiss inflation unexpectedly quickens in July. Headline CPI rose 0.2% y/y (consensus: 0.1%) vs. 0.1% in June, and core CPI increased to a four-month high at 0.8% y/y (consensus: 0.6%) vs. 0.6% in June. The Swiss National Bank (SNB) forecasts headline CPI inflation to average 0.1% in Q3 before gradually picking-up and stabilizing at 0.7% by Q2 2027.

At the last June 19 meeting, the SNB cut the policy rate 25bps to 0%. In our view, the SNB still has room to lower the policy rate into negative territory. Inflation pressures remain benign and plans by the US to impose a 39% tariff (up from an initial 31% proposal) on Swiss goods from August 7 is a drag to growth. The swaps market price-in 70% probability of 25bps cut in the next 12 months. Regardless, CHF safe haven status outweighs the drag to the currency from the likelihood of negative rates.

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