USD/CHF plunges below 0.9050 amid soft US Dollar and robust Swiss Q1 GDP growth

• USD/CHF plummets to near 0.9040 due to multiple headwinds.
• The US Dollar weakness due to soft US Q1 GDP (second estimates) reading.
• The Swiss economy expanded strongly by 0.5% in the first quarter of this year.

The USD/CHF pair has been hit hard and has plunged to near 0.9040 in Thursday’s American session. The reasoning behind steep fall in the Swiss Franc asset is sharp correction in the US Dollar and the outperformance of the Swiss economy in the first quarter of the year.

The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, corrects further to 104.70. A sharp sell-off in the US Dollar is driven by slower United States Q1 Gross Domestic Product (GDP) growth. The revised GDP estimates report has indicated that the economy expanded at a slower pace of 1.3% against 1.6% recorded from flash estimates.

The optimism over the US economic outlook that was built on expectations of 1.6% GDP growth has been impacted. However, the impact of the lower real GDP growth is expected to remain limited as it is a lagging indicator which exhibits the economy’s health.

Going forward, the US Dollar is expected to remain highly volatile ahead of US core Personal Consumption Expenditure Price Index (PCE) data for April, which will significantly influence speculation for Fed rate cuts in September. The underlying inflation data is scheduled to be published on Friday. Annual and monthly core PCE inflation readings are estimated to have grown steadily by 2.8% and 0.3% respectively. Steady inflation growth data would negatively impact market speculation for the Federal Reserve (Fed) to begin reducing interest rates from the September meeting.

Meanwhile, the Swiss Franc strengthened after the Q1 GDP report showed that the Swiss economy outperformed the consensus and the prior reading. The report showed that the economy expanded by 0.5% against the estimates and the former release of 0.3%. This has deepened upside risks to inflation, which could force the Swiss National Bank (SNB) to avoid subsequent rate-cut plans.

(This story was corrected on May 30 at 14:43 GMT to say that the Swiss economy expanded by 0.5% QoQ in Q1 2024 after 0.3% in the previous quarter. The original version said 1.5% actual versus 1.3% previous)