In the early European session on Tuesday, the USD/CHF pair maintains a sideways trajectory above the mid-0.8700s, with investors adopting a wait-and-see approach in anticipation of the upcoming US inflation report later in the day. Currently trading around 0.8772, the pair shows minimal movement thus far.
Last week, Federal Reserve officials underscored the institution’s commitment to data-dependency, emphasizing the need for confidence in a sustainable return of inflation to the Fed‘s 2% target. Market sentiment, as reflected in the CME FedWatch Tool, indicates a 70% probability of a rate cut in June, with a 22% chance of a May rate cut. The forthcoming US CPI inflation data is eagerly awaited by investors, poised to offer fresh direction.
Forecasts for the headline CPI figure anticipate stability at 3.1% YoY in February, while the Core CPI figure is expected to dip to 3.7% YoY from January’s 3.9%. These figures hold the potential to inject volatility into the market, with a stronger-than-expected report possibly tempering expectations of a Fed rate cut and bolstering the US Dollar (USD), thereby supporting the USD/CHF pair.
Adding complexity to the market dynamics, escalating geopolitical tensions in the Middle East contribute to a cautious atmosphere, prompting investors to seek refuge in safe-haven assets like the Swiss Franc (CHF). Concerns regarding the potential spread of violence, particularly in Jerusalem, during the Islamic holy month of Ramadan persist, as a ceasefire remains elusive according to BBC reports.
Looking ahead, market participants will closely monitor the US February CPI inflation data later in the day. As the week progresses, attention will shift to the release of US Retail Sales for February, anticipated to show a 0.8% YoY increase. Friday will witness the unveiling of the US Industrial Production and Michigan Consumer Sentiment Index, rounding out a week laden with economic indicators.
