During the early European session on Tuesday, the USD/CHF pair experienced a decline to 0.9120, primarily driven by selling pressure on the Greenback. Market participants exhibited a cautious mood, bolstering the Swiss Franc (CHF) ahead of the impending Gross Domestic Product (GDP) data releases from Switzerland and the US scheduled for Thursday.
The recent hawkish stance adopted by Federal Reserve (Fed) officials, as revealed in the minutes of their recent meeting, coupled with hotter-than-anticipated US inflation figures and robust PMI data, have sparked speculation regarding a potential delay in interest rate cuts by the US central bank this year. According to the CME FedWatch tool, financial markets have priced in nearly a 50% probability that the Fed will maintain rates in September. Persistent inflationary pressures in the US have prompted Fed policymakers to advocate for a prolonged period of elevated interest rates to instill confidence in achieving the 2% inflation target. Consequently, this narrative may temporarily bolster the Greenback and provide tailwinds for the USD/CHF pair.
Market participants will closely monitor the release of the Personal Consumption Expenditures (PCE) index on Friday for fresh market catalysts. Projections indicate that the US headline PCE is anticipated to exhibit a 0.3% month-on-month increase and a 2.7% year-on-year rise in April. Similarly, the Core PCE, considered the Fed’s preferred inflation gauge, is expected to register a 0.3% month-on-month uptick and a 2.8% year-on-year expansion in April. Should the inflation data surpass expectations, it could further bolster the USD against the CHF.
On the Swiss front, prevailing cautious sentiment, coupled with ongoing geopolitical tensions in the Middle East, may stimulate safe-haven flows and consequently support the CHF. Recent reports from Gazan officials concerning casualties resulting from Israeli airstrikes in Rafah have prompted global leaders to advocate for the cessation of hostilities, adding to market uncertainty. Additionally, market analysts anticipate Swiss GDP figures to reflect a 0.3% quarter-on-quarter expansion in Q1, with annual GDP growth forecasted at 0.1% for the same period. Should the GDP data exceed expectations, it could provide additional upliftment for the CHF in the short term.
