USD/CHF extends downside below 0.8350 on soft inflation reports

• USD/CHF trades in negative territory near 0.8330 in Friday’s early European session.

• Soft inflation reports drag the US Dollar lower. 

• SNB's dovish stance might cap the CHF’s upside. 

The USD/CHF pair extends the decline to around 0.8340 during the early European session on Friday. Soft US producer prices and consumer inflation weigh on the US Dollar (USD). Later on Friday, investors will focus on the release of the Swiss Producer and Import Prices report for April.

The US Producer Price Index (PPI) rose 2.4% YoY in April, following the 2.7% increase in March, according to the Bureau of Labor Statistics on Thursday. This figure came in below the market expectation of 2.5%. Earlier this week, data showed that the US CPI increased by 2.3% YoY in April, compared to a rise of 2.4% in March. This reading came in below the market expectation of 2.4%. 

Markets are now pricing in nearly a 75.4% chance for the first cut of at least 25 basis points (bps) at the central bank's September meeting, according to LSEG data. Some analysts believe the Fed officials could wait until December.

Fed Chair Jerome Powell said on Thursday that the US central bank officials feel they need to reconsider the key elements around jobs and inflation in their approach to monetary policy, given the inflation experience of the last few years. Meanwhile, Fed Governor Michael Barr said the economy is on solid footing with inflation moving towards the central bank's 2% target, but trade policies have raised uncertainty about the outlook.

The economic uncertainty could weigh on the sentiment, which benefits the Swiss Franc's (CHF) relative safe-haven status and acts as a headwind for the USD/CHF pair. However, the dovish stance of the Swiss National Bank (SNB) might cap the CHF’s upside. SNB Chairman Martin Schlegel emphasized that the Swiss central bank was ready to slash rates below zero if inflation keeps undershooting its target.