USD/CHF has rebounded on Tuesday, ending a rally that saw the Swiss franc climb over 1%. In the European session, USD/CHF is trading at 0.9344, up 0.40%.
Swiss inflation higher than expected
Switzerland released the February inflation report on Monday and the reading was higher than expected. CPI rose 0.7% m/m, up from 0.6% in February and above the 0.4% forecast. On an annualized basis, CPI climbed 3.4%, edging up from 3.3% and higher than the forecast of 3.1%.
These inflation numbers would be a dream come true for most major central banks, which are struggling with inflation levels two or three times higher. Still, the Swiss National Bank is concerned about high inflation, as its target is 0-2%. The SNB was widely expected to raise rate by 50 basis points at the rate meeting on March 23 and the uptick in February inflation cements the likelihood of such a move. Swiss National Bank Chair Jordan will make an appearance later today and is likely to address the rise in inflation.
The SNB does not provide forward guidance for its rate policy, which means that rate decisions are made on a meeting-by-meeting basis. The central bank has projected an inflation rate of 2.4% for 2023, and with the cash rate currently at 1%, it’s a safe bet that we’ll see another hike in June of either 25 or 50 basis points. The continuing tightening should provide a boost to the Swiss franc, but traders should keep in mind that the SNB has not hesitated to intervene in the foreign exchange market when the Swiss franc became too strong for its liking.
In the US, Federal Reserve Chair Powell will be in the spotlight as he testifies before a Senate committee later today. The Fed has remained hawkish and after a host of strong January releases, the markets have shifted their expectations closer to the Fed’s stance. It was only a few weeks ago that the markets were projecting a pause followed by rate cuts, but this has changed to pricing in three more rate hikes this year. There is a lot of uncertainty in the air about inflation and interest rates and the markets are hoping that Powell’s comments will provide some clarity.
- There is resistance at 0.9381 and 0.9420
- 0.9304 and 0.9224 are providing support
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