USD/CHF remains confined within familiar ranges, fight against high rates dominates

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  • USD/CHF is stuck in familiar ranges despite stronger US Dollar on US CPI data.
  • Trades will be watching the macro inflation story and any change in sentiment surrounding the SNB and ECB.

At 0.9265, USD/CHF is a bit higher in Asia. Asian stock markets fell on Friday. The risk averse mood echoed that of Wall Street following the worrying US inflation data. Uber’s hawkish comments from the Federal Reserve’s James Bullard also supported sentiment for a 50 basis point rate hike in March, or even earlier at a possible Federal Open Market Committee meeting.

Bullard’s aggressive comments sent U.S. Treasury yields higher after he said the data had made him “significantly” more hawkish and he now wants a full percentage point hike in interest rates. here on July 1st. He even said the Fed might raise rates inter-meetings. As a result, contracts traded at CME Group carried an 88% probability of a 50 basis point hike in March and an almost 95% probability of at least 100 basis points by June.

Stocks reacted similarly, with the Dow Jones Industrial Average falling 1.47%, the S&P 500 losing 1.81%. The Nasdaq Composite also fell 2.1%. Meanwhile, MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.76%. Japanese markets were closed for a holiday but will potentially be weighed down by macro inflationary risk sentiment when they return on Monday.

Meanwhile, the Swiss franc was one of the least affected by the US data. While traders were quick to assume that inflation risks were not limited to the US, medium-term inflation expectations remain well anchored in Switzerland and, in any case, CPI inflation is still lower. to the objective of the Swiss National Bank. This contrasts with the situation in many other G10 economies. That being said, for USD/CHF, there is an uptrend on the longer term charts. Continued hawkish sentiment around the Fed is expected to support the greenback and continue to support USD/CHF.

What can serve as a driving force for Switzerland, in addition to geopolitical risks such as Russia for its allure of a safe haven, could be the divergence, or convergence, between the European Central Bank and the Fed. Last week, the ECB opened the door to a rate hike later in 2022 as inflation risks grew. This had a profound effect on the forex space, lifting the euro and weighing heavily on the greenback. However, it was dampened by less hawkish comments from the ECB governor the following Monday, which stripped the euro of its gains. Given the correlation between the CHF and the EUR, the highest of the majors for the close ties between the Eurozone and Switzerland, traders will be watching the ECB for updates of any monetary policy tightening in the zone. euro.

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