- USD/CHF posts its biggest daily decline since June 15, down 1.16%.
- The pair updates multi-month lows just below the 0.9400 figure.
- Headline inflation in the US falls to 8.5% year-on-year, but core inflation remains unchanged.
- Fed’s Evans: The Fed isn’t done raising rates; Fed funds are expected to be in the 3.25-3.50% range by the end of the year.
The USD/CHF slumps in the North American session after the US Labor Department reported that US inflation rose at a slower pace, which could deter the US Federal Reserve from tightening its monetary policy. Furthermore, tensions between Taiwan and China appear to be easing, adding to the positive mood.
At the time of writing, USD/CHF was trading at 0.9413 after reaching a daily high in the early Asian session at 0.9542. However, positive economic data out of the US sent the major currency lower, which sank to a multi-month low at 0.9393, before bouncing back towards current prices.
US inflation falls from 9.1% year-on-year in June to 8.5%.
The US inflation report showed that the consumer price index for July, on an annual basis, rose 8.5%, less than estimates of an 8.7% rebound. For its part, excluding volatile elements such as food and energy, the so-called core CPI increased by 5.
9% year-on-year, unchanged from June and less than expected. The fall is due to the fact that gasoline prices, a dollar less than in June, offset the increases in food and housing.
Investors reacted with a sign of relief, sending US stock markets up between 1.90% and 2.60%, while the greenback fell. The dollar index, which measures the value of the dollar against a basket of pairs, lost 1.27%, falling below the 105.00 mark. Short-dated US bond yields are falling, while 20-year and 30-year yields are rising.
USD/CHF immediately reacted lower, breaking on its way south the 200-day EMA at 0.9424, exacerbating a push below the 0.9400 figure. However, in the last hour, the pair regained some ground, and once the dust had settled, the buyers took the latter back.
Late in the session, Chicago Fed President Charles Evans came across the news. Although the CPI is the “first positive report”, inflation is unacceptably high. He added that the Fed is not done raising rates, and that he expects the Federal Funds Rate (FFR) to be between 3.25% and 3.50% by the end of the year. He added that by the end of 2023, he expects the FFR to be between 3.75-4.00%.
What to watch out for
The US economic docket will feature Minnesota Fed President Neil Kashkari on Wednesday. For Thursday, the calendar will offer prices paid by producers, also known as PPIs and initial jobless claims.
Technical levels
Source: Fx Street
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