USD/CHF dives to near 0.9070 despite Fed maintains a restrictive policy guidance

• USD/CHF has printed a fresh two-week low at 0.9070 as Fed scales down the policy tightening pace.
• The downbeat US Manufacturing PMI failed to impact the risk appetite theme.
• A spell of contraction in Swiss Real Retail Sales might force the SNB to avoid policy restrictions.

The USD/CHF pair has refreshed its two-week low at 0.9070 in the early Asian session. The downside pressure in the Swiss franc asset is built on a smaller interest rate hike announcement by the Federal Reserve (Fed). Fed chair Jerome Powell has stretched interest rates by 25 basis points (bps) to 4.50-4.75%, citing the requirement of maintaining policy significantly restrictive to address stubborn inflation.

The commentary from Fed’s Powell signifies that the Consumer Price Index (CPI) is clearly in a downtrend led by subdued consumer spending, a weak housing sector, and a slowdown in the United States' economic activities. However, the Fed will continue hiking interest rates to make monetary policy sufficiently restrictive as it needs more evidence to be confident inflation is on a downward path.

Despite Fed's hawkish guidance, the US Dollar Index (DXY) failed to hold the cushion of 101.00 and printed a fresh nine-month low at 101.64. S&P500 soared vigorously on a less-hawkish monetary policy by the Fed. The 500-US stock basket ignored the downbeat release of the United States ISM Manufacturing PMI (Jan). Manufacturing PMI dropped consecutively for the third time as higher interest rates by the Fed have resulted in lower consumer spending, which forced firms to avoid deploying full operational capacity. The economic data dropped to 47.4 lowest since May 2020 reading.

Apart from that, Automatic Data Processing (ADP) Employment data landed at 106K significantly lower than the estimates of 178K and the former release of 253K.

On the Swiss franc front, annual Real Retail Sales (Dec) data has contracted by 2.8% while the street was expecting an expansion of 2.6%. The economic data has been contracting consecutively for the past three months and is likely to force the Swiss National Bank (SNB) to avoid considering a restrictive stance on interest rates.