USD/CHF drops below 0.8900 as bears cheer soft US CPI data, hawkish remarks by SNB Jordan

• US inflation data disappoints, with CPI at 4.9% YoY, below 5% projections; USD/CHF slides towards 0.8890
• SNB Governor Thomas Jordan’s hawkish comments emphasize the need for tighter monetary policy
• Federal Reserve expected to hold rates unchanged in June, with a 93.6% probability, according to CME FedWatch Tool

USD/CHF extends its bearish downtrend, though it appears to consolidate around the year-to-date (YTD) lows at around the 0.8800 handle after US data showed that prices are edging lower. In addition, hawkish rhetoric from the Swiss National Bank (SNB) Governor was cheered by USD/CHF bears. The USD/CHF is trading at around the 0.8890s area.

Swiss National Bank’s Stance on Inflation Curbs USD/CHF Rally, Pair Consolidates Near YTD Lows

Inflation has been the main narrative of Wednesday’s session. The US Bureau of Labor Statistics (BLS) revealed the Consumer Price Index (CPI) in April expanded as expected by 0.4% MoM, while annually based, the data showed an improvement with prices edging below estimates—figures came at 4.9%, below projections of 5%.

The core CPI data, which the US Federal Reserve (Fed) monitors closely to assess inflation without the volatile items, jumped by 0.4% MoM. Year-over-year (YoY) core inflation rose by 5.5%, unchanged from the last reading and aligned with the market’s consensus.

Although inflation remains high, it hurt the USD/CHF prospects of higher prices, as the major dropped from the daily highs of 0.8927 back towards the 0.8890 area. On the upside, the USD/CHF rally was capped by the 20-day EMA at 0.8892 and the psychological 0.8900 figure.

Regarding news from Switzerland, SNB Governor Thomas Jordan commented that inflation remains above average for price stability and higher than the central bank wants. Jordan added that they don’t anticipate a wage-price spiral and emphasized that monetary policy “at the moment” is not restrictive enough. He said that the Swiss Franc (CHF) nominal appreciation was sparked by inflation abroad.

Given the backdrop, the Federal Reserve is expected to hold rates unchanged at their meeting in mid-June, as shown by the CME FedWatch Tool, with odds at 93.6%. A reflection of that is US Treasury bond yields, namely the 2-year note, the most sensitive to changes in monetary policy, dropping 11 bps to 3.910%.

The SNB’s hawkish rhetoric might refrain USD/CHF bulls from entering the market. The SNB is expected to continue tightening monetary conditions as inflation in Switzerland remains above the central bank’s target.

USD/CHF Technical Levels