- USD/CHF pair experiences a correction, approaching the 0.8400 level, as the US Dollar weakens in response to the unexpectedly subdued US CPI data for April.
- Despite the moderation in US inflation, market forecasts regarding the Federal Reserve’s decision to maintain stable interest rates in April remain largely unchanged.
- The Swiss Franc pairing surpasses the 20-day Exponential Moving Average (EMA), signaling a potential strengthening of the upward trend.
The USD/CHF currency pair is undergoing a retracement, nearing the key psychological support level of 0.8400 during the North American trading session on Tuesday. This correction in the Swiss Franc pair is attributed to the US Dollar facing increased selling pressure following the publication of the latest United States (US) Consumer Price Index (CPI) figures for April, which indicated a more tempered increase in price pressures than previously anticipated. The CPI data is closely scrutinized by investors and policymakers alike as a key indicator of inflationary trends within the US economy.
The US Dollar Index (DXY), a measure of the Greenback’s strength against a basket of six major currencies, has corrected to approximately 101.30, retreating from its recent monthly high of around 102.00, which was recorded on Monday. This decline in the DXY reflects the broader weakening of the US Dollar in the foreign exchange market.
The CPI report revealed that headline inflation rose at an annualized rate of 2.3%, which is below both the consensus estimates and the previous reading of 2.4%. This suggests a deceleration in the overall rate of inflation. Concurrently, the core CPI, which excludes the volatile components of food and energy prices, exhibited a steady growth rate of 2.8% year-on-year, aligning with market expectations. The core CPI is often considered a more reliable gauge of underlying inflationary pressures.
The cooler-than-expected inflationary pressures have not significantly altered market expectations regarding the Federal Reserve’s (Fed) monetary policy outlook. According to the CME FedWatch tool, the probability of the Fed maintaining interest rates within the current target range of 5.25%-5.50% at the July Federal Open Market Committee (FOMC) meeting remains relatively stable at 61.4%. This indicates that a majority of market participants still anticipate the Fed to hold steady on interest rates in the near term. It’s worth noting that on Monday, traders slightly reduced their expectations for a dovish stance from the Fed at the July policy meeting following reports that the US and China had reached an agreement to reduce tariffs by 15% for a period of 90 days, a development that could potentially ease inflationary pressures and reduce the urgency for further monetary easing. The market will continue to monitor economic data releases and Fed communications for further clues regarding the future path of monetary policy.
