USDCHF sees a downside below 0.9830 amid weaker DXY, US Inflation hogs limelight

• USDCHF is expected to witness more downside below 0.9830 as the risk profile soars.
• Less room for bigger rate hikes by the Fed is weighing on US Treasury yields.
• The SNB is not bound to keep the inflation rate in a 0-2% range but will keep focusing on bringing price stability.

The USDCHF pair has sensed selling pressure after failing to overstep the critical hurdle of 0.9875 in the early Asian session. The asset is hovering around its fresh two-week low at 1.3869 and is expected to surrender the same amid a risk-on market mood.

A meaningful recovery in S&P500 in the late New York session cleared that the risk-perceived currencies are on the buying list of the market participants. Meanwhile, the US dollar index (DXY) printed a fresh seven-week low at 109.36 amid a decline in safe-haven's appeal.

The alpha generated by the US government bonds has slipped sharply as investors see no continuation of the bigger rate hike announcement by the Federal Reserve (Fed). The 10-year US Treasury yields have dropped to 2.13% as the room for bigger rate hikes is extremely low now.

The deviation between current interest rates and the proposed terminal rate is mere 80 basis points (bps) now. Therefore, Fed chair Jerome Powell is expected to adopt a gradual approach to hiking policy rates. In case of the absence of exhaustion in October’s inflation report, Fed policymakers could come forward with higher targets for interest rates and the central bank would continue hiking rates further.

As per the preliminary estimates, the headline inflation is seen lower at 8.0% vs. the prior release of 8.2%. While the core Consumer Price Index (CPI) is expected to drop marginally to 6.5% against the prior print of 6.5%.

On the Swiss franc front, Swiss National Bank (SNB) Chairman Thomas J. Jordan has clarified that the monetary policy decisions are not purely based on the inflation rate at High-Level Conference on Global Risk, Uncertainty, and Volatility, in Zurich.

The central bank is not committed to fine-tuning the inflation range at 0-2% but will take necessary action when will face the risk of soaring inflation. He further added that “We are also experimenting with machine-learning models that are trained using a large set of economic and alternative indicators.”