USD/CHF remains confined to familiar ranges, rake high tussle dominates
- USD/CHF is stuck in familiar ranges despite a firmer US dollar on US CPI data.
- Trades will monitor the macro inflation story and for any change of sentiment surrounding the SNB and ECB.
At 0.9265, USD/CHF is a touch higher in Asia share markets fell on Friday. The risk-off mood echos that on Wall Street following the concerning US inflation data. Uber hawkish comments from Federal Reserve's James Bullard ave also underpinned the sentiment for a 50bps rate hike in March, or even sooner in a possible emergence Federal Open Market Committee meeting.
The aggressive comments from Bullard have sent US Treasury yields higher after he said the data had made him "dramatically" more hawkish and now wants a full percentage point of interest rate hikes by July 1. He even said that the Fed could raise rates at inter-meetings. Consequently, contracts traded at CME Group priced in an 88% chance of a 50 basis point hike in March and a nearly 95% chance of at least 100 basis points by June.
Stocks reacted in kind with the Dow Jones Industrial Average tumbling 1.47%, the S&P 500 losing 1.81%. The Nasdaq Composite also fell losing 2.1%. Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.76%. Japanese markets were closed for a holiday but will potentially be weighed by the macro inflationary risk sentiment when they return on Monday.
Meanwhile, the Swiss franc has been one of the least affected by the US data. While traders were quick to assume that the inflation risks were not isolated to the US, the medium-term inflation expectations remain well-anchored in Switzerland and in any case CPI inflation is still below the Swiss National bank's target. This is in contrast to the situation in many other G10 economies. With that being said, for USD/CHF, there is a bullish trend on the longer-term charts. Continued hawkish sentiment around the Fed would be expected to underpin the greenback and continue to support USD/CHF.
What may serve as a driver for the swiss, other than geopolitical risks such as Russia for its safe-haven allure, could be the divergence, or convergence, between the European Central Bank and the Fed. Last week the ECB opened the door to a rate hike later in 2022 as inflation risks rose. This had a profound effect on the forex space, lifting the euro and weighing heavily on the greenback. However, it was dialled down by less hawkish comments from the ECB's governor the following Monday which stripped the euro of its gains. Considering the correlation between CHF and EUR, the highest of the majors for the close ties between the eurozone and Switzerland, traders will monitor the ECB for updates to any monetary policy tightening in the eurozone.