USD/CHF drops back towards 27-month low with eyes on Swiss, US inflation clues

• USD/CHF fades late Thursday’s corrective bounce off the lowest levels since January 2021.
• US Dollar remains pressured as downbeat inflation clues push back hawkish Fed bets.
• Swiss Producer and Import Prices, US Retail Sales and University of Michigan’s Consumer Inflation Expectations eyed.

USD/CHF retreats to 0.8885 during early Friday, following its corrective bounce off 0.8860 the previous day. In doing so, the Swiss Franc (CHF) pair fades the bounce off the lowest levels in 27 months amid broad-based US Dollar weakness. It’s worth noting that the pair’s further downside appears limited amid the market’s cautious tone ahead of the key Swiss and US inflation numbers.

That said, the US Dollar Index (DXY) prods the lowest level of 2023 marked in February as the greenback bears attack the 100.80 level, around 100.90 by the press time.

The greenback’s latest losses could be linked to the recently downbeat US inflation data as it rules out the need for higher Federal Reserve (Fed) rates and weighs on the US Dollar and the USD/CHF price in turn.

That said, On Thursday, the US Producer Price Index (PPI) for March dropped to a four-month low of -0.5% MoM versus 0.0% expected and prior whereas the PPI YoY also declined to 2.7% from 4.9% previous readouts, versus market forecasts of 3.0%. Previously, the Consumer Price Index (CPI), dropped to the lowest level since May 2021, to 5.0% YoY in March from 6.0% prior and versus 5.2% market forecasts. However, the annual Core CPI, namely the CPI ex Food & Energy, improved to 5.6% YoY during the said month while matching forecasts and surpassing 5.5% prior.

Apart from US inflation clues, talks of Fed policymakers, signaled via the latest Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting also keep the USD/CHF bears hopeful. The reason could be linked to the Minutes stated saying that the expectations for rate hikes were scaled back due to the turmoil in the banking sector. With this, the Minutes offered no fresh information and raised doubts about the hawkish Fed moves, apart from May’s 0.25% rate hike.

Furthermore, multiple statements from the International Monetary Fund (IMF) and the World Bank (WB) Spring Meeting of global central bank officials suggest that the recession woes are more likely in the West. The same weigh on the US Dollar amid softer inflation data. Furthermore, hopes of economic recovery in Asia and the moves to destabilize the US Dollar’s reserve currency status by Russia, China and Brazil also exert downside pressure on the USD/CHF price.

Against this backdrop, S&P 500 Futures print mild losses by the press time, despite the firmer closing of Wall Street. Further, the US 10-year and two-year Treasury bond yields fade the previous day’s recovery and exert downside pressure on the DXY.

Moving on, Swiss Producer and Import Prices for March, expected to remain unchanged at -0.2% MoM, will precede the US Retail Sales for March, the Michigan Consumer Sentiment Index (CSI) for April and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations to direct USD/CHF moves.

Technical analysis

A clear downside break of an eight-month-old descending support line, now immediate resistance around 0.8930, directs USD/CHF bears toward the year 2021 low near 0.8760.