USD/CHF trading flat in 0.9250 area post-poor UoM data

• USD/CHF is trading flat just above 0.9250, unmoved by the latest weaker than expected UoM sentiment data.
• Dollar bulls may be disappointed by the lack of post-hot CPI data upside, amid fears front-loaded tightening will hit growth.

Much weaker than expected University of Michigan Consumer survey data, which revealed sentiment to have broadly deteriorated to its worst levels since 2011, failed to shift USD/CHF out of intra-day ranges, with the pair for now remaining supported above 0.9250. The pair is currently trading flat, having come close to but failed to test 0.9300 for a second successive session. Dollar bulls might be disappointed at the lack of follow-through in terms of post-hot US Consumer Price Inflation data upside, despite the hawkish shift in Fed tightening expectations and subsequent sharp rise in yields across the US curve.

The US dollar’s reluctance to stage a more meaningful rally, which for USD/CHF would likely look like a move above 0.9300 and a test of H2 2021 and 2022 highs around 0.9350, has perplexed analysts. Some have pointed to the pronounced, ongoing flattening of the US yield curve which on Friday saw the 2-year 10-year spread drop to its lowest in over 18 months at under 40bps. A flatter curve is seen by many as indicative of softer long-term growth expectations.

The hawkish shift in Fed tightening expectations of recent months has been the major driver of the flattening and likely speaks to a fear that by tightening rates earlier and more aggressively, the Fed may cap long-term growth prospects. This fear may be the major factor holding USD/CHF back from moving up a gear and charging back above 0.9300. For the pair to challenge post-pandemic highs in the upper 0.9400s, long-term US yields are likely going to need to see further upside and thus the US curve perhaps steepens a little to reflect greater confidence in long-term US growth.