During the early European trading hours on Monday, the USD/CHF pair extended its decline around the 0.9020 mark. This downward trend was primarily driven by a weaker US dollar (USD), following the release of the US Personal Consumption Expenditures (PCE) Price Index inflation data, which exerted downward pressure on the pair.
Market attention is now focused on Switzerland’s Consumer Price Index for May, slated to be released on Tuesday, ahead of the eagerly awaited US employment data. The lingering uncertainty surrounding the timing of the US Federal Reserve’s (Fed) interest rate cut continues to weigh on the US dollar (USD), particularly after the recent PCE report revealed that US inflation remained steady in April.
According to the Commerce Department’s report on Friday, the headline US PCE rose 0.3% month-on-month (MoM) in April, in line with the unrevised gain recorded in March. Additionally, the Core PCE, which is the Fed’s preferred inflation gauge, increased by 0.2% MoM in April, compared to a 0.3% gain in March. The core PCE price index also rose by 2.8% on a yearly basis, aligning with expectations.
Investors have adjusted their expectations following the inflation report, with nearly a 53% probability of a Fed rate cut in September, up from 49% before the release. Traders are keenly awaiting the US ISM Manufacturing PMI for potential market-moving insights, projected to improve to 49.8 in May from 49.2 in April. A stronger-than-expected outcome could temper expectations of a Federal Reserve rate cut this year, thereby limiting the downside for the Greenback.
In other developments, Swiss Real Retail Sales showed improvement, reaching 2.7% year-on-year (YoY) in April, rebounding from a decline of 0.2% in March. This result surpassed expectations and bolstered the Swiss Franc (CHF) against its counterparts. Additionally, market participants are closely monitoring developments surrounding Middle East geopolitical tensions, particularly following reports indicating Israel’s acceptance of President Biden’s proposal for a Gaza cease-fire. Heightened concerns in this regard could further bolster safe-haven currencies like the CHF.
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